The Overseas Investors Chambers of Commerce and Industry (OICCI) has made a couple of very interesting points in a recent letter to the finance minister. Appreciating his efforts to revive the IMF bailout program, which is mission critical for the country at the moment, the letter nonetheless went on note also that measures adopted, along with the contractionary monetary policy, were further “eroding investor confidence”. This is precisely the dilemma that the country finds itself in; and what paints a bull’s eye on any party that forms government; opening it to vicious political attacks by the opposition. The Chamber knows what it is talking about because about 200 of its members have invested more than $20 billion in Pakistan’s economy over the last ten years or so; making it the “largest tax contributor to the exchequer”. Similar concerns were raised by other chambers of commerce and industry in the country at the time of the last MPC (monetary policy committee) meeting as well. Lamenting the hawkish squeeze on monetary policy, complementing the extremely contractionary fiscal policy, they wondered how now we will attract foreign and local investors to the Pakistani market. There’s also the matter of abrupt toggling of the tax regime; an arbitrary exercise that causes uncertainty and always rubs investors the wrong way. Fair enough. But, then, this was also part of IMF’s demands that were necessary to meet to unlock the remainder of the Extended Fund Facility (EFF), which OICCI appreciated at the very start of the letter. Such things are well and truly out of control of the Pakistani government since it is in desperate need of money from the Fund as well as other multi- and bi-lateral donors. Yet perhaps the biggest, and most valid, point of concern is that the finance ministry’s and state bank’s policies are destroying demand to control inflation which is cost-push in nature and predominantly driven by the supply side. That leaves us to draw only one conclusion: that erosion of investor confidence stemming from IMF’s “prior conditions” is beyond Pakistan’s ability to manage right now, but pouring water on aggregate demand while the supply side is on fire might erode more investor confidence than the situation would otherwise warrant. *