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Geo-economics and power

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After the fall of the Berlin Wall and the collapse of the Soviet Union, the international system witnessed a number of transformations like globalization of trade exchanges, de-industrialization of the Western World and the rise of new powers like China, Brazil and even post-Soviet Russia.

Before then the geo-economic analysis considered the enterprise as the center of the economic balance of power and was mainly focused on competition. At the present stage, this model appears not to be accurate enough to address the contradictions between power politics, market practices and territorial approaches. The chart elaborated by French strategist Christian Harbulot (PMT) allows considering other elements like power, market and territory that better address the complexity of this analysis.

The main challenge is finding a convergence between long-term business interests and state power politics strategies while taking an environmental friendly approach. The enterprises, for example, tend to have a preference for short-term policies, whereas state-led industrial policies are set on a long-term basis.

Nevertheless, there are indeed some cases in which coordination between corporate development strategies and state-led economic policies is successful: for instance, Russian state-led Gazprom as far as the choice of international markets for Russian gas supplies is concerned, and the American Boeing, that refused to open a branch for aircraft assembly in China, in order to avoid transferring sensitive technologies.

On top of business and state policies coordination problems, the economic needs of the territories do not necessarily merge with state-led or business practices, which refer to the logic of competition, like in the case of de-localizations.

The graph below (PMT) highlights the intersection between the three above-mentioned levels (power, market, territory). Its goal is providing a dynamic reading of different economic scenarios, not exclusively centered on the enterprise or on financial actors, whose decisions do not always take into account environmental contexts. This cross-referenced analysis facilitates the drafting of anticipation or corrective economic strategies.

The interpretation of power politics must take into account a political understanding of economic relations, which are promoted especially in developing countries. The interpretation of the market operations, mainly performed by entrepreneurs, must consider a certain amount of detachment from political objectives, especially in the Western world. Lastly, the interpretation of the actions of local stakeholders must consider the fact that the territory has always suffered from the aggressiveness of competition, to which territorial representatives tried to react through innovative management and appealing policies.

Another category that also influences economic decision-making is civil society that does not account to state, business or local stakeholders. Civil society’s stances are progressively boosting a broader reflection on market economy and advocating an ethical regulation of economic affairs through some forms of sustainable development.

The organization and management of strategic provisions is a fundamental feature of any discussion related to strategic economic development and the increase of state power. The strategic decision that are more often taken in order to increase strategic provisions security are: creating a special State-business committee, establishing partnership with other states, research and development investments, relaunching production capacity, adopting a recycle policy.

The creation of a State – Business commission on strategic provisions could better connect the public and the private sector so that services provided by the states in key sectors (defense, foreign affairs, industry, ecology, etc.) are available to the business sector. The Committee for strategic metals (COMES), established in France in 2011, is an example of this synergy even though its high level of specialization sometimes limits its broader efficiency.

Many of the OCSE countries, like the United States and Japan, set up a reserve of strategic raw material provisions to draw from in case of a block in supplies. However, this option presents some problematical aspects: 1) setting aside a certain amount of strategic raw materials to accumulate in the reserve can determine a lack of capital supplies for the entrepreneurs; 2) it is not really clear what is more convenient to fill the stockpile with. Accumulating low-alley materials or semi-finished products can be difficult for a country where the first transformation process of final products does not take place.

In order to keep supplies constant over time, the securitization of strategic provisions must rely on the partnership with foreign countries or companies as well. A good example of partnership could be setting up a mining site in a state possessing a given raw material and working on its production and transformation capacities through transferring capitals and know-how.  In this regard – as many businessmen highlight – the choice of the partner countries depends on geopolitical risk factors. Argentine and Brazil, for instance, are more likely to attract foreign investment compared with the Democratic Republic of Congo that is not considered as a safe country.

Investing in research and development (R&D), instead, is fundamental to find alternative solution to the substances that are either too expensive or toxic, and to decrease the quantities that are needed without affecting the performance.

Relaunching domestic production capacity contributes to the requalification of the abandoned production sites or whose value for some reasons decreased over time. This option can be challenging for a number of reasons: reopening existing plants is expensive, sometimes the know-how of a given district disappeared over the years, and it is difficult to identify what is the best business opportunity to restore (mines, transformation chains, etc.). On top of a cutting waste practices, businessman prefer to adopt a material recycling policy, especially in the automotive and aeronautical sector. However, even recycling has its downsides, like expensive and polluting processes, and cannot be considered as a determined solution because there is still some waste percentage that cannot be fully eliminated.

Nevertheless, even in a context of perfect synergy between the investments, the policies presented so far are just the starting point for the securitization of strategic provisions. A successful strategy to address this issue requires an accurate assessment and forecast of the current and the future needs of both enterprises and people of a given community. Before pursuing any kind of policy in this field, the state must necessarily have a clear perspective on its own plan for strategic provisions.

An accurate forecast should envisage future needs and the kind and quantity of the materials that are necessary for the functioning of technologies of the future. Identifying supply chains is another aspect worth considering – especially as far as rare materials are concerned – in light of the possible risks for the industrial plants.

The French government in the early ’70 adopted a similar plan after the oil crisis: assessment of future energy needs, development of technologies to cope with it (nuclear power plants), and identification of uranium supply chains and implementation of a strategy based on a reduction in hydrocarbons provisions. The creation of the COMES is part of this plan.

The issue of provisions can be observed from two different angles. Strategic provisions are mainly raw materials of which the state needs constant supply: energy sources like oil, gas, uranium and rare earth elements that are indispensable for the functioning of information technologies and communication, to “green” energy and defense technologies. The Strategy of provisions, instead, consists in the policies to be adopted to guarantee a sufficient supply of strategic materials to sustain prosperity of the French socio-economic model over time.

The enterprise is the main actor of the economy and plays a significant role vis-à-vis the economic war that is relentlessly replacing traditional conflicts in the international arena at the present moment. An example of the combination between war and economics is the fight in the acquisition of post-war reconstruction contracts, like in Bosnia and Kosovo in the ‘90s but even more in Iraq or Libya. In Africa, especially in the Great Lakes region, great powers compete between each other for the control of strategic raw materials that are vital for the future of industrialized economies.

At this stage of globalization in which the future of the economy is mainly determined by non-state actors, the presence of the State is highly put into question. Nevertheless, it would be impossible to completely cut out the state from the economy because the roles it inevitably plays in a market: client, sponsor and producer all at the same time.

According to the definition provided by British historian and WWII expert Liddel Hart, setting up a “strategy” means coordinating and canalizing all the resources of a given state (political, military, diplomatic, economic, cultural) towards the outcome desired. With the end of the Cold War, the importance of the military element is progressively decreasing, while trade and economic resources became the main domain of competition between states.

This new setting of inter-state competition is also the result of the rise of new actors, the BRICS countries, alongside the West and Japan, which represent the traditional industrial powers. As far as European countries are concerned, there are some less evident elements to rely on in order to draft a more accurate plan for the future: ensuring state control on strategic sectors through providing incentives for domestic enterprises and, most importantly, aiming at economic growth, employment and gaining presence on foreign markets.  

The United States and China are the major great powers that show how state support to the private sector – especially vis-à-vis the protection of strategic sectors and promoting domestic business abroad – is not only possible but also indispensable at power politics.

An interesting feature of the French economy is the difference of treatment – and sometimes the conflict – between multinational and small/medium enterprises. Multinational corporations are the driving force of the economy and although for a long time benefited from the national industrial policies, they are currently trying to weaken the ties with the state. Small and medium enterprises are instead more rooted in the national territory but are often struggling for financing, access to foreign markets, protection of their specific know-how and acquisition of new capacities that are indispensable for their survival. The state should then play a key role in coordinate public and private sphere. However, mutual mistrust between these two sectors – although understandable – turns out to be a hurdle for development in most European countries.

In the United States the situation is quite different: strong ties between public administration, private sector, academia and think tank built up a network that strongly favors communication and obtaining information. This aspect tends to get little attention in Europe, where state power is considered as a limit to overcome rather than an opportunity to take. It is true that public institutions have a significant advantage in terms of intermediation capacities and access to information compared to the private actors. However, if oriented towards the needs of the real economy, multi-level coordination between public and private sector can provide a competitive advantage for both multinational and small/medium enterprises.

Creating competitive clusters allows to use the networks at its full capacity, helps local sharing of good-practices with regard to economic intelligence, protection of intangible heritage of information, and know-how of the enterprises. The state cannot refuse to take this pressing challenge: it must promote the access to good practices especially for small enterprises following the rules of transparency.

In recent years, investment funds became a popular topic in the debate around economic power as possible threat to the survival of western corporation model, especially as far as middle-eastern and Chinese sovereign funds are concerned. However, Chinese investments in European companies are still quite low and mainly concentrated in sectors like raw materials, energy resources and other operations that does not lead to a real control the enterprise.

In some cases, however, some acquisitions are deemed to gain technological (or other) competences, without a real interest to invest in the local development of the acquired undertaking, as the cases of Intel (investment fund with CIA connections), Carlyle Group (in the aerospace industry) and TPG (that from 2006 controls the main French company producing smart cards) demonstrate. In this framework, there are several instruments aiming at protecting State’s sovereignty, which is threatened by massive purchasing of economic activities by sovereign funds. Firstly, a screening of foreign investment in strategic fields can be put in place, especially to protect Small and Medium Enterprises. Secondly, a change of attitude is needed, in order to accept that developing countries will control more and more European companies. In these cases, however, the principle of reciprocity shall be respected.

Particular relevance has to be granted to standard and rules, which are normally set out at the international level. Accordingly, lobbying within international organizations, as the United States knows very well, is of the highest importance. Otherwise States could elaborate their own standards or invest, for example, in the International Organization for Standardization, as China is doing.

In this subject matter, the European Union is not able to “speak with one voice”. In particular, the lack of a Union’s comprehensive strategy, and thus the predominance of national interests, is particularly evident. In accordance with the Treaties, in fact, in the internal market, the protection of competition takes precedence over an effective industrial policy. In light of the foregoing, new priorities should be set out, in order to enhance the coordination that could increase the penetration in non-EU markets (especially concerning some strategic sector, i.e. the defense one) and improve the existing competition. Nevertheless, it should be noticed that these changes might not be possible without the creation of real “United States of Europe”.

The current debate often focuses on energy security, not only from an economic point of view. The need to swift from “energy security” to the “energy supply” has been underlined, as well as the importance of securing the energy flows. This is demonstrated by the so-called “oil wars”, as the two Gulf wars, the war in Afghanistan and in Libya could surely be defined. However, despite the fact that the oil supply is one of the main causes of these conflicts, delicate international geopolitical balances are crucial elements to be take into account.

Along with the control of the “black gold”, the “gas issue” should be given a great importance for several reasons. Research demonstrates that the increasing in energy demand in the next years (from developing countries in particular) could not be satisfied by oil only. Furthermore, it is necessary to find alternative solutions in order to overcome difficulties stemming from extraction techniques in newly discovered oil fields.

Accordingly, States are trying to revise their energy policy, by reducing consumption and improving the quality of their infrastructures to avoid leaks, by diversifying their energy sources, especially by increasing the use of renewable energy (i.e. wind, sun and wave power), and by controlling the use of national resources (as France does with hydropower and nuclear energy).

Moreover, security of supplies is related to raw materials, where the interplay between economic and geopolitical aspects is evident. Agricultural products, minerals and rare earths elements are only few examples.

China holds more than 90% of rare earth elements and uses this monopoly to achieve its political purposes, against Japan for instance, towards which the Chinese government applies restrictions on exports in light of their territorial disputes. Furthermore, conflicts arise in relation to abundant resources, such as cultivable lands (as it happens with land grabbing) or common goods, such as water, air, biodiversity and the genetic heritage. In this framework, countries, in a globalized word, have to deal with the scarcity of resources, caused by demographic growth, as well as by the increasing of material and immaterial trade flows, flows of goods and people, information and money. In particular, supplies are granted only when flows are safe and this implies several economic and military consequences.

On the one hand, different economic elements shall be protected: the ownership of infrastructures, the technical control of the exploitation of resources, the choice of transport routes (such as pipelines for the European supply) and the control on access routes (such as harbours).

On the other hand, security depends on military capacity to oversee production and export areas, as well as on seaway’s extension and control. Examples are the protection of the Gulf of Aden by EU’s Atlanta and NATO’s Ocean Shield operations.

One of the main geopolitical issues in the current debate concerns rare earth elements These include 17 elements that are fundamental for high-tech industries, even though they are used in small quantities. For instance, lanthanum can be found in electric vehicle batteries and in sonar; samarium in some missiles’ elements; gallium in night vision devices; indium in flat panels. These specific Raw materials are actually at the center of the dispute between China and the United States, which are two of the main actors in international relations of XXI century. Evidence supports the predominance of China in this field: the country holds between 34 and 50% of world reserves and produced, in 2010, 95% of rare earth elements (130,000 tonnes out of 133,000). This was possible after having progressively abandoned the exploitation of western sites and the complete integration in the global economy system. Therefore, Pekin is able to use this leverage in its dialogue with western countries, by imposing very high prices or, even worse, by breaking their supply chain. There is no doubt, however, that a problem of dependence exists and that it is not clear how to solve it. Nevertheless, China’s position seems not to be so safe. The country should become an importer of rare earth elements by the end of the current decade.

Between 2006 and 2010 China reduced its export share of these metals from 5 to 10% per year. Furthermore, their production was limited, to avoid the depletion of reserves. However, China-Japan tensions of September 2010 (following the Japanese inspection of a Chinese vessel in “contested” waters) have worsened their relationship. As a result, the Chinese Trade Minister set 30% reduction of export share.

China was trying to use rare earth metals as an economic weapon, which led to a real embargo on its exports towards the European Union, Japan (representing one fifth of its final demand) and United States, whose diplomats were able to obtain by their Chinese colleagues full assurance concerning liability in the future. This demonstrated that Sino-US relations are of the highest importance in the American politics. Currently, 87% US imports of rare earth elements come from China, while the remaining 13% is from domestic reserves.

The Chinese embargo forced the United States to implement a strategic vision that was missing so far, because of the dependence of the country form external resources. Therefore, the US needed to undertake some measures stimulating mining, refining and transformation of this kind of raw materials.. As a result, the US pursued a policy of differentiation of trade partners.

Nevertheless, the exploitation of mines in order to obtain rare earth elements is rather difficult, both at the administrative (the re-opening of one of these mines takes 9 years) and at the political level (environmental organisations are often against these projects). Molycop case represents a successful story in this field. The enterprise, in fact, owned Mountain Pass mine, which is the biggest site of non-Chinese rare earth metals in the world, and obtained in 2010 (few months after the above-mentioned diplomatic tensions with China) the authorization to relaunch the activity. Molycorp’s efforts ended at the end of 2012 and the company increased its production from 3.000 tonnes to 20.000 tonnes per year and received 531 million dollars of funds. Currently, the company is the only one that extracts these materials outside China. The step of this process will be summarised in the following paragraph.

In June 2010 Molycorp signed an agreement with Canadian company NeoMaterial, which provides technical assistance and know-how on the production of rare earths elements. Moreover, in December of the same year, Molycorp set up a joint-venture with the Japanese Hitachi, in order to create several associated enterprises producing alloys and magnets in the United States. Furthermore, Molycor signed a memorandum of understanding with Sumitomo Corporation trough which Molycorp completed its supply chain of rare earth metal-manufacturing products. These products are then delivered to Sumitomo Corporation. In April 2011 Molycorp acquired the American branch of the Japanese enterprise Santoku for 17.5 million dollars and the Estonian Silmet for 89 million dollars. Therefore, Molycorp can actually count on a network of customers that goes from the Far East to Europe.

Molycop has secured funds, mines, know-how, logistical cooperation and a network of buyers, and became the only western enterprise with a full control of the entire supply chain of rare earth elements, from the mining to the sale process . The United States could thus avoid direct conflicts with China, after the threat of embargo and the increase in prices.

Despite the fact that China could not be excluded from rare earth elements-market, its power shall be controlled, as tensions arisen in 2010 showed. The idea of an embargo in September 2010 stimulated competition and pushed western countries to diversify their supply sources. As a result, the offer increased and Chinese power decreased.

Economy

The suffocating economy of Iran

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Iran’s economy is on a roller coaster. The past year saw a dramatic rise in inflation rates and a historic fall in the value of the rial. The protests which followed the death of a 22-yar old Kurdish woman Mahsa Amini have magnified the creaks in the country’s economy.

On  January 22, The Iranian rial was selling at an exchange rate of 450,000 against the greenback, an all-time low. The rial has lost 29% of its value since the time the protest started. Iran’s statistical agency reported an inflation rate of 48.5% in December 2022, the highest level since 1995. November data recorded food inflation of above 70% in 12 provinces of the country.

Reports from the country suggest that more than half of the population is living below the poverty line due to spiraling prices. As per the latest forecast, the World Bank predicts a GDP growth of 2.9% for Iran in 2022 which will slow down to 2.2% in 2023 and 1.9% in 2024 owing to “slower growth in key trading partners and new export competition from discounted Russian oil”. However, the government’s response to the bleak economic indicators so far had been subtle and unperturbed.

Causes

The unilateral withdrawal of the US from the nuclear deal in 2018 and the sanctions that followed on oil exports and international banking has put heavy stress on the country’s economy.

 The country’s government debt-to-GDP ratio rose to 45% in 2020. According to World Bank, Iran’s unemployment rate reached 12.2% in 2020 before narrowly dipping to 11.5% in 2021. Iranian daily Etemad had reported that at least 23 workers have committed suicide since March 2022 in the country due to reasons like dismissal, punishment, or threats.

The government lifted import subsidies for essential goods in April 2022, to ease the pressure off the strained government budget, which subsequently triggered rapid spikes in food prices during May-June.

The Federal Reserve in November tightened its control over Iraqi commercial banks to restrict the illegal siphoning of dollars to Iran and other Middle-East countries. The new regulations blocked a huge chunk of daily dollar wire transfers to Iran. The Taliban takeover in 2021 had previously blocked access to hard currency to Iran via the Afghan route.

Amid the uprising, European Parliament approved a resolution designating the Iranian militia, Islamic Revolutionary Guard Corps (IRGC) a ‘terrorist’ organization. It also called for sanctions on Supreme Leader Ayatollah Ali Khamenei, President Ebrahim Raisi, and others. The US and UK too imposed fresh sanctions on Iran.

Response

Iran retaliated on January 25th by imposing sanctions on 34 British and European individuals and entities.

Former Central Bank of Iran governor Ali Salehabai had been sacked in December due to failure to control the rapid depreciation of the rial. According to analysts in the region, the Central Bank is injecting dollars into the market to thwart further depreciation.

In late January, the Central Bank decided to raise the maximum amount of currency that can be sold to individuals annually from 2000 euros to 5000 euros, to instill confidence and ward off fears about the availability of currency. The cap was initially introduced to stabilize the currency after the US pull-out of the nuclear deal in 2018.

Iran has not resorted to austerity to tide over the crisis. Instead, President Ebrahim Raisi presented a noticeably enlarged national budget in January to boost growth. Valuing 21,640 trillion rials, the budget is 40% larger than the previous one. The Islamic Revolutionary Guards Corps (IRGC) was allocated $3 billion registering a 28% rise over the last year, in a taunting message to the west.

Recently, Iran introduced gold coin certificates in the stock market to raise cash and mitigate inflation. The government is desperate to raise cash as the government budget is posting a deficit of $9.75 billion. Critics point out unrealistic revenue estimates riding on oil sales and over-optimistic tax collection figures.

To raise revenue, Iran has increased its oil exports to China to more than 1.2 million barrels per day over the past three months. The sanctions have in effect caused Iran to warm up to western rivals like China and Russia. Iran and Russia are reportedly in talks over the introduction of a stablecoin, backed by gold, to bypass western sanctions in cross-border transactions.

Iran’s response to the looming economic crisis was devoid of any extreme desperation. The government took all necessary steps to keep the dread within bounds. The present security situation in the country could go haywire if the economy collapses.

It remains to be seen how fast the government can ensure reliable alternate arrangements in place to sustain the economy. If not immediately, chances are high that the country may drift to panic mode.

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Prospects of Vietnam’s Economic Growth in 2023

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The ongoing  war in Ukraine and increasing commodity prices across the world have impacted the developing countries. Countries in Asia which were recovering from the COVID-19 impact on their economies have to rework their recovery process by looking for alternate supply chains and reducing their financial responsibilities towards social sector through budgetary management. Among the developing economies in Asia , Vietnam showed an economic growth of nearly 3 per cent  even when many of the countries were witnessing  recession and reduced production because of adverse impact of COVID-19 .The stimulus packages that the governments across the world have to give to the manufacturing sector to accelerate production and meet the demands of the people. In a report released by World Bank in August last year it was stated that the Vietnamese economy is likely to grow by nearly 7.2 per cent in 2023 and it is going to sustain itself in 2024 with a likely growth projection of 6.7 per cent. These are encouraging signs .Few of the sectors which might be accelerating the growth process would be in the field of footwear and electronics. Vietnam itself has been undertaking strong anti corruption measures so as to facilitate stronger economic fundamentals and recovery from the COVID-19 impact.

The economic growth of Vietnam has been accelerating and the agricultural sector has been productive in ensuring food security for Vietnamese citizens. As per one of the estimates this sector contributed more than 14 per cent in national gross domestic product and has engaged more than 35 per cent of youth in the year 2020. This sector also earned valuable foreign exchange of more than U.S. dollar 48 billion. One of the interesting achievements of Vietnam has been increasing life expectancy, and its universal health coverage which covers more than 87 per cent of the population.

As per the plan of action which has been envisaged  for Vietnamese economy by its leadership it aspires to become a high income country by the year 2045. It is expected that with the sound economic fundamentals and more than 5.5 annual average per capita growth for the next 2 and a half decades it can reach that milestone. Vietnamese population is also young and is adapting itself for digital economy and building core fundamentals for its membership in different regional economic organisations such as RCEP and CPTPP.The bilateral free trade agreement with EU is also facilitating its growth in several sectors.

There have been significant structural improvements ushered through policy documents in terms of improving financial architecture, accepting global norms related to climate and environment, comprehensive security for population against poverty , and extensive investment in infrastructure development both in rural and urban areas.

In one of the articles written  in Bloomberg it has acknowledged that Vietnam is  now is one of the Asia’s  fastest growing economies which has grown to 8.02% last year and it even surpassed  government assessment of 6 to 6.5 per cent growth. The article also acknowledged the fact that manufacturing has been growing to near 10 per cent mark in comparison to last year and there is strong development in the services sector as well. Among the economies Vietnam’s  inward foreign direct investment has also been doing quite well and it has received nearly US  $27.72 billion last year .Asian Development Bank has forecasted that Vietnam is going to grow at the rate of 6.3% in the year 2023. Also the unemployment rate has reduced and with inflation clearly under 5 per cent , showcases that the long term decisions which we have taken with the initiation of Doi Moi(economic liberalisation process )  in 1986 has been bearing fruits.

In terms of sectoral assessment, the real estate as well as construction  sector ,the growth was about 7.78 per cent last year and the services sector growth was closer to 10 per cent. There have  been increase in exports last year as well and an increase of 10.6% was noticed. One of the core arguments which have been given with regard to Vietnam’s impressive growth has been related to trade liberalization, increased deregulation and improvement in the ease of doing business, investment in human resources and stable government were seen as critical attributes for this impressive growth in Vietnamese economy.

Major companies in footwear, electronics, and mobile production have invested in Vietnamese economy and few of the companies have shifted base from China to Vietnam. Improved  congenial economic environment has been appreciated by companies such as Adidas, Nike and Samsung to list few.

Owing to the development of new kind of digital technologies and better consumer awareness Vietnam is preparing itself for a major impetus in the E- commerce sector and therefore has been making extensive changes in digital based economy and more stress on science and technology development. Vietnam has acknowledged the fact that with the changes in sectoral composition of the economy, it is pertinent to develop necessary skill power and human resources which can seamlessly integrate Vietnam into global value chains and also help the services sector in exploring new markets.

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Economy

The Crippled Economy

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Lack of money is the root of all evils. Facts do not seize to exist because they’re ignored.

Lack of money is what Pakistan is experiencing and dealing with every now and then for the major part, since it came into existence either due to incompetence of our political leaders, their corruption, fighting wars of someone else or due to lack of long-term vision. Pakistan is currently in the middle of a turmoil trying to recover from devastating floods of 2022, facing the after effects of the withdrawal of USA from Afghanistan in the form of resurgence of terrorism, dealing with the political chaos created by the politicians who claim to be leaders of the state. Another yet most important, severe and devastating challenge that Pakistan is facing is its economic downfall. In one sense the lack of money is the root cause of all the problems mentioned above except the political chaos.

The economy of Pakistan, like a battle-hardened warrior has built resilience battling several challenges over the course of seventy years and is trained to survive but the recent political turmoil and the difficulty caused by nature (Floods), the burden of debts repayment, the threat of resurgence of terrorism and international indicators pointing towards an economic recession in 2023 has almost crushed the backbone of Pakistan’s economy.  

World bank has recently released its latest report forecasting Pakistan’s Gross domestic product (GDP) to grow at only 1.7% for the fiscal year (FY) 2023 that is less than the half of what it predicted to during last June (4%). It has also predicted a near to recession economic situation of the world economy characterized with high inflation, increasing interest rates and the circumstances caused by the Russian Invasion of Ukraine.

Pakistan must reportedly payback 73$ Billion in the next three years till the end of FY2025 and central bank of the country also known as State Bank of Pakistan currently has Foreign exchange reserves of about only 5.6$ billion. This debt repayment is the key challenge for Pakistan’s economic survival and other challenges such as ever-increasing inflation, high interest rate, the growing unemployment, the decrease in imports are all byproducts of the main challenge. The threat of a possible default is becoming evident and is looming over fiscal horizon.

Monsoon on Steroids, a phenomenon directly linked with climate change played havoc with Pakistan. These floods added a profound risk to the country’s economic outlook. The country lost infrastructure worth of billions of dollars and floods effected 33$ million people and 1700 people lost their lives. According to Ministry of Planning and development of Pakistan, Pakistan has faed the loses of more than an estimation of 10$ billion. The catastrophe of floods also played with agroeconomics as crops were destroyed causing destruction of agriculture sector which makes up to 24% of country’s GDP. A comprehensive recovery policy is needed and with the helped promised by international community at Geneva, government has passed one hurdle but to make the sustainable recovery abundance of resources, capacity and transparency is needed.

The policy uncertainty has been a major cause in creating a mistrust among investors and has almost ceased foreign direct investment in Pakistan. This policy uncertainty is due to lack of will of national leaders to take tough decisions. For Example, former prime minister of Pakistan rolled out of International Monetary Fund’s (IMF) program fearing his ousting and to gain public support he reduced prices of commodities such as Petrol & Gas and took country almost on the verge of default.

The policy uncertainty is caused by Political uncertainty which in turn lead towards economic uncertainty. Economic stability can only be achieved by political stability and there’s no other way around. Political stability can be achieved through free and fair elections and elimination of the role of establishment in political process of Pakistan. And if a government takes long-term policy goals into account while formulating a policy rather than short-term goals to gain public support and trying to keep hold on the reins of Government. The selfish politicians have to play selfless and put Pakistan’s benefit before their own benefit to get Pakistan out of this political and economic turmoil.

The only solution in sight for Pakistan is to carry on with the 6$ billion IMF program and to try for rescheduling of depts repayment as it owes more than 70$ billion to be paid by the end of 2025 that is currently not possible. Another step from international community can also help Pakistan that is if a country makes an investment of 10-20$ billion directly rather than in the form of loans as happened in CPEC. Moreover, help from rich friendly Muslim countries can also provide an array of hope for Pakistan.

But these steps won’t address the clear underlying malaise of the economy and the fact that something fundamentally will need to change, in terms of how much the economy produces versus how much it spends, to avoid default down the road. But none of Pakistan’s political parties seem to have the political will or ability to bring about such change. Priorities needs to be shifted from personal interest of political elite to national interest. They must be ready to sacrifice their political image and interest for the greater good and to save the country from default down the road.

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