Pakistan has finally got the opportunity to look towards its economic development after facing internal and external security turmoil during last few decades. It is willing to prioritize economic security and leverage it to protect the national interests. The shift from geo-political confrontation to geo-economic cooperation was proposed by National Security Adviser, Moeen Yousuf. Foreign Minister Shah Mehmood Qureshi has also reiterated Pakistan’s commitment to ‘geo-economic shift’ during his physical and virtual contacts with several countries including Germany, and Egypt. The country has started diversifying its economic and diplomatic engagement with states. Domestically, the situation is rather vague when it comes to economic attributes necessary for pulling geo-economic strategy. Pakistan is facing recurrent need of foreign loans, trade deficit, narrow export base, and low international market share. This puts question whether the strategy would ever be materialized or not. To prevent the latter scenario, government should work on the means for successful achievement of geo-economic goals.
First of all, Pakistan needs to enhance its engagement in the regional economic setups to diversify its trade partners, prevent or lower obstacles in the form of trade barriers, prevent export diversions and secure FTAs with different countries. It will also enhance Pakistan’s inclusion in global supply chains (which currently stands at meagre 0.08%) and ensuring domestic competitiveness in production and supply. Pakistan wants to be the Full Dialogue Partner in ASEAN plus six; however, its membership is denied by three members (Vietnam, the Philippines and Singapore). Pakistan is reaching out to these states bilaterally, but the process will be smooth if it engages with them at multiple levels and fora. The most recent neglect in this domain has been in the form of non-membership of RCEP, which includes East Asian economic giants (South Korea, Japan, China, Australia, etc.). Most of East Asian states do not have extensive trade relations with the inner Asia. Pakistan can offer them to extend their trade in these regions through CPEC. This is especially true for South Korea and Japan, since CPEC will reduce time of access and curtail their insecurity due to Hormuz dilemma as almost 80% of their trade depends on this strait. Also, there is an incentive for these states to invest in Pakistan in SEZs, infrastructure, hydropower projects, theme parks development, and coastal development. Pakistan has 300,000 English speaking IT specialized young people, and overall 2/3rd of population is youth. This human capital can also be a big potential for these states. Most of advanced East Asian states (like Singapore, Philippines, and Thailand etc.) also face the threat of terrorism. Pakistan can help them through its own successful experience of counter-terrorism. Moreover, Pakistan can pursue both public-partnership and privatization with these states for efficient industrialization and refunctioning of disabled industries.
Secondly, Pakistan should also embark on joining US and its allies’ led ‘B3W Initiative,’ which is a 40 trillion dollars infrastructure project for facilitating the developing countries in building back better. The initiative is argued to be ‘anti-China,’ but is not necessary to be projected this way since one of G-7 members, i.e. Italy, is also a BRI partner. More than 100 countries have already signed agreements with China under BRI. B3W is more like giving an opportunity for the states to develop themselves and to balance their policies between both strategic and economic competitors. Pakistan, with its aspirations of pursuing independent policy-making and remaining neutral in US-China competition, can get benefit politically and economically from joining B3W, as well. It has already signed a multilateral deal with USA, Afghanistan and Uzbekistan, which focuses on regional stability, peace and connectivity. This is a good incentive for Pakistan to further this deal for entry into B3W project.
Thirdly, as Pakistan is already working on enhancing its tourism due to the richness of natural aesthetic places with all their diversity, there is a need to develop better transport facilities, modern infrastructure that would boost the potential. Pakistan should work on maritime tourism as well, which can be a huge industry, but given the poor management of the beaches and limited development, it does not come under global attractive tourist destinations despite having the potential. The lack of attention is not limited to tourism domain. Pakistan has marine area of 240,000 square kilometers which makes up to 36.4% of the country’s territory. If the maritime area of Pakistan were a land piece, then it would be a little greater than Punjab province. This tells that Pakistan has blessed blue economic zone. The all year functional seaport of Karachi and Port Qasim and world’s deepest port Gwadar with its strategic location add more to its significance. Despite all this, unfortunately, Pakistan suffers from what we call sea blindness (people are not aware of maritime potential). At one time, Pakistan ranked first in ship-breaking industry but now it’s fourth with India being at the top and Bangladesh at second place. It should tap its resources and capitalize on them, be it maritime coast, maritime tourism or even fisheries. There is a need to educate people that sea is not a dumping source but a potential which is to be utilized. It should also enhance public-private partnerships (at both national and international levels) so that the ports and its resources can be developed. Pakistani elite go to Thailand, Mauritius etc. to visit their beaches which are not unique, but just well-developed. Pakistan needs technological advancement as there is no advanced technology for handling massive cargo and even for cleaning up the shores. The technologies for fishing are also not advanced and environment-friendly due to which it was banned many times by international community.
Fourth, Pakistan should expand the export base and opt for modern techniques for efficient production and long-term preservation. The country is already a major exporter of textiles, fruits, cereals, vegetables, pharmaceutical instruments, and sport items. Recently, it has started the export of meat to states like China, Malaysia etc. Domestically, Pakistan should introduce price tags for utility items that are same across the country, so that food items’ exploitation through hoarding practices can be prevented. Pakistan must increase its competitiveness in these exports by introducing modern technological methods. This is necessary as competitors of Pakistan in these exports are being facilitated by regional mechanisms. Also, being one of the four largest milk producers in the world, Pakistan should introduce cold supply chains for efficient domestic use and even bringing it at international standard for exports. Subsidies and government intervention (packaging laws etc.) are required to reap economic benefits in terms of employment, food security and revenue. States like Turkey, India, Bangladesh, Malaysia etc. have already developed dairy industry. It also needs to shift its exports’ orientation towards IT sector that is more economically productive for state economies in this information age.
Fifth, Pakistan must work on its positive image through soft power tools, like public diplomacy that do not only target international audience, but also national one. There is a need of unanimous understanding between government and public about certain policies, so that there is no room for misunderstanding, repulsion and policy failures. Internationally, too, Pakistan has to work on its ‘image,’ because in this age of media, people believe what they see, without considering who’s behind the scene or what other aspects of reality could be. The initial climate snub, recent re-listing Pakistan on UK’s Red-list, and non-removal of Pakistan from FATF’s list—all point to the need of ‘soft and liberal image’. International audience must be convinced about Pakistan’s tolerance towards diversity in all aspects, i.e. cultural, religious, political, economic and social. This is necessary for them to know the other side of the coin, and for Pakistan to have international confidence in business, tourism and diplomacy. The first step towards this is what PM Imran Khan said, ‘self-belief’. During National Amateur Short Film Festival (NASFF), ISPR Chief Gen. Iftikhar Babar said that the youth should take “the responsibility of showing the real Pakistan,” which is ‘extremely beautiful and magnificent’ through their film-makings.
As for Jaishankar Doctrine—ignore, isolate and intimidate Pakistan, which seems to be working, yet it needs to be ignored. Pakistan should keep, on its part, diplomatic and peaceful methods of engagement open for India. It should engage and have as many partners as possible in East Asia, South Asia, Middle East, North and Central Africa, Europe and Americas, because the aim is now to ensure Pakistan’s ‘economic security’ with the goals of ‘peace and progress’ as stressed by FM Shah Mehmood Qureshi. In a single sentence summary, there is a need of substantive reforms, not just conveyed policies, because they are the means to remove the obstacles, which Pakistan currently faces in the materialization of its geo-economic strategy.
Free-Market Capitalism and Climate Crisis
Free market capitalism is an economic system that has brought about tremendous economic growth and prosperity in many countries around the world. However, it has also spawned a number of problems, one of which is the climate crisis. The climate crisis is a global problem caused by the emission of greenhouse gases, primarily carbon dioxide, into the atmosphere. These externalities are chiefly a consequence of day to day human activities, such as the burning of fossil fuels, deforestation, and conventional agriculture. The climate crisis is leading to rise in temperatures, sea levels, and more erratic weather patterns-The floods in Pakistan and depleting cedars of Lebanon are vivid instances for these phenomena, which are having a devastating impact on the planet.
One of the main reasons that free market capitalism has contributed to the climate crisis is that it prioritizes short-term economic growth over long-term environmental sustainability. Under capitalism, companies are primarily motivated by profit and are not required to internalize the costs of their pollution. This means that they are able to pollute without having to pay for the damage that they are causing. Additionally, the capitalist system is based on the idea of unlimited growth, which is not sustainable in the long-term. As long as there is an infinite demand for goods and services, companies will continue to produce them, leading to ever-increasing levels of pollution and resource depletion.
Another pressing issue that free market capitalism is recently going through is that it does not take into account the externalities of economic activities. Externalities are the unintended consequences of economic activities, such as pollution and climate change. Under capitalism, companies are not required to pay for the externalities of their activities, which means that they are able to continue polluting without having to pay for the damage that they are causing. In her book “This Changes Everything: Capitalism vs Climate” Naomi Klein argues that the current system of capitalism is inherently incompatible with the urgent action needed to address the Climate crisis.
To address the climate crisis, it is necessary to put checks and balances over the free market capitalism and/or make a way towards a more sustainable economic system. This can be done through a number of different effective policies, such as:
Carbon pricing: This can be done through a carbon tax or a cap-and-trade system, which would make companies pay for the carbon emissions that they are producing. In the article “The Conservative Case for Carbon Dividends” authors suggest that revenue-neutral carbon tax is the most efficient and effective way to reduce the carbon emissions.
Increasing renewable energy investments: an increment in the investments in clean energy technologies, such as solar and wind power, can result in the reduction in the use of fossil fuels.
Regulating pollution: Governments can regulate pollution to limit the amount of greenhouse gases that are emitted into the atmosphere.
Encouraging sustainable practices: Governments can encourage sustainable practices, such as recycling and conservation, to reduce the use of resources.
It is remarkable that evolving Capitalism can be harnessed to address the climate change. The private sector has the resources and innovation to develop and implement new technologies and sustainable practices, but they need the right incentives and regulations to do so. Finding the balance between economic growth and environmental protection must be a priority for capitalists.
The free market capitalism has been the driving force behind global economic growth, but at the same time, it has contributed to the ongoing climate crisis. The solution to this problem is not to reject capitalism, but rather to reform it to the societies’ suitable demands. Government should consider providing a level playing field so as to make the probable transition from fossil-based energy systems to Green energy technologies possible. The capitalists should not consider short-termism over long term environmental sustainability. Government intervention to put a price on carbon emissions, invest in renewable energy, regulate pollution, and encourage sustainable practices is necessary to avoid the worst impacts of the climate crisis and build a sustainable future for all. However, here is the catch: Is achieving net-zero-carbon emissions by mid-century a probable target? The answer is quite uncertain, however it is critical point to strive for in the face of escalating Climate Crisis.
Egypt’s “Too Big to Fail” Theory Once Again at Test
Authors: Reem Mansour & Mohamed A. Fouad
In the wake of 2022 FED’s hawkish monetary policy, the Arab world’s most populous nation, Egypt, saw an exodus of about USD20bn of foreign capital. A feat that exerted pressure on the value of its pound against the dollar slashing it by almost half. This led to USD12bn trade backlog accumulating in Egypt’s ports by December 2022.
Meanwhile, amidst foreign debt nearing USD170bn, inflation soaring to double digits, and a chronic balance of payment deficit, Egypt became structurally unfit to sustain global shocks; the country saw its foreign debt mounting to 35% of GDP, causing the financing gap to hover at USD20billion.
While it may seem all gloom and doom, friends from the GCC rushed to inject funds in the “too big to fail” country, sparing it, an arguably, ill-fate that was well reflected in its Eurobond yields spreads and credit default swaps, a measure that assesses a sovereign default risk.
For the same reason in early 2023, the IMF sealed a deal worth of USD3bn, with the government, which unlocked an extra USD14bn sources of financing from multilateral institutions, and GCC sovereign funds, to fill in a hefty portion of the annual foreign exchange gap, albeit a considerable amount averaging USD6bn per annum is yet to be sourced from portfolio investments.
With the IMF stepping in, the Egyptian government agreed on a structural reform program that requires a flexible exchange rate regime, where the Egyptian pound is set to trade within daily boundaries against the US dollar, rationalize government spending, especially in projects that require foreign currency; and most importantly the program entails stake-sales in publicly owned assets, paving the way for the private sector to play a bigger role in the economy.
In due course, through its sovereign fund, Egypt planned initial offerings for shares in companies worth about USD5-USD6bn, and expanded the sale of its shares in local banks and government holdings to Gulf investment funds.
Through the limited period of execution of these reforms, the EGP hit a high of 32 against the greenback, and an inflow of portfolio investments amounting to USD1bn took place, according to the Central Bank of Egypt.
Simultaneously, Citibank International, cited a possible near end of the devaluation of the Egyptian pound against the US dollar. Also, in a report to investors, Standard Chartered recommended to buy Egyptian treasury bills, and pointed to the return of portfolio flows to the local debt market in the early days of January, 2023. Likewise, Fitch indicated the ability of the Egyptian banking sector to face the repercussions of the depreciation of the pound, and that the compulsory reserve ratios within Egyptian banks are able to withstand any declines in the value of the pound because they are supported by healthy internal flows of capital.
While things seem to be poised for a recovery, the long term prospects may lack sustainability. The Egyptian government needs to accelerate its plans to shift gears towards a real operational economy capable of withstanding shocks and dealing with any global challenges. Egypt, however has implicitly held the narrative that the country is ‘too big to fail”. This is largely true to the country’s geopolitical relevance, but even this has its limitations when the price to bail far outweighs the price to fail.
Former President George W. Bush’s administration popularized the “too big to fail” (TBTF) doctrine notably during the 2008 financial crisis. The Bush administration often used the term to describe why it stepped in to bail out some financial companies to avert worldwide economic collapse.
In his book “The Myth of Too Big To Fail” Imad Moosa presented arguments against using public fund to bail out failing financial institutions. He ultimately argued that a failing financial institution should be allowed to fail without fearing an apocalyptic outcome. For countries, the TBTF theory comes under considerable challenge.
In August 1982, Mexico was not able to service its external debt obligations, marking the start of the debt crisis. After years of accumulating external debt, rising world interest rates, the worldwide recession and sudden devaluations of the peso caused the external debt bill to rise sharply, which ultimately caused a default.
After six years of economic reform in Russia, privatization and macroeconomic stabilization had experienced some limited success. Yet in August 1998, after recording its first year of positive economic growth since the fall of the Soviet Union, Russia was forced to default on its sovereign debt, devalue the ruble, and declare a suspension of payments by commercial banks to foreign creditors.
In Egypt, although the country remains to face a number of challenges, signs remain relatively less worrying than 2022, as global sentiment suggests that leverage will be provided in the short-term at least. Egypt’s diversified economy, size and relative regional clout may very well spare the country the fate of Lebanon. However, if reforms do not happen fast enough, the TBTF shield may become completely depleted.
Hence, in order to avoid an economic fallout scenario a full fledged support to the private sector’s local manufacturing activity and tourism is a must. Effective policies geared towards competitiveness are mandatory, and tax & export oriented concessions are required to unleash the private sector’s maximum potential and shift Egypt into gear.
Sanctions and the Confiscation of Russian Property. The First Experience
After the start of the special military operation in Ukraine, Western countries froze the assets of the Russian public and private sector entities which had been hit by blocking financial sanctions. At the same time, the possibility that these assets could be confiscated and liquidated so that the funds could be transferred to Ukraine was discussed. So far, only Canada has such a legal mechanism. It will also be the first country to implement the idea of confiscation in practice. How does the new mechanism work, what is the essence of the first confiscation, and what consequences can we expect from the new practice in the future?
Loss of control over assets in countries that impose sanctions against certain individuals has long been a common phenomenon. The mechanism of blocking sanctions has been widely used for several decades by US authorities. A similar methodology has been adopted by the EU, Switzerland, Canada, Australia, New Zealand, Japan and some other countries. Russia and China may also resort to these tactics, although Moscow and Beijing rarely use them. In the hands of Western countries, blocking sanctions, however, have become a frequent occurrence. Along with the ban on financial transactions with individuals and legal entities named in the lists of blocked persons, such sanctions also imply the freezing of the assets of persons in the jurisdiction of the initiating countries. In other words, having fallen under blocking sanctions, a person or organisation loses the ability to use their bank accounts, real estate and any other property. Since February 2022, Western countries have blocked more than 1,500 Russian individuals in this way. If you add subsidiary structures to them, their number will be even greater. The volume of the property of these persons frozen abroad is colossal. It includes at least 300 billion dollars in gold and foreign exchange reserves.
This is not counting the assets of high net worth Russian individuals worth $30 billion or more which have been blocked by the G7 countries. However, the freezing of property does not mean its confiscation. Although the blocked person cannot dispose of his assets, it formally remains his property. At some point, the sanctions may be lifted, and access to property restored. In practice, restrictive measures can be in place for years, but theoretically, the possibility of recovering assets still remains.
After the start of the special military operation (SMO), calls began to be heard in Western countries to confiscate frozen property and transfer it to Ukraine. Confiscation mechanisms have existed before. For example, property could be confiscated by a court order as part of the criminal prosecution of violators of the sanctions legislation. However, such mechanisms are clearly not suitable for the mass confiscation of property. Blocking sanctions are a political decision that do not require the level of proof of guilt that is required in the criminal process. To put it bluntly, the hundreds of Russian officials or entrepreneurs put on blocking lists for supporting the SMO did not commit criminal offenses for which their property could be subject to confiscation. The sanctions have spurred the search for such crimes in the form of money laundering or other illegal operations. But the amount of funds raised in this way would be a tiny fraction of the value of the frozen assets. To implement the idea of confiscation of the frozen assets of sanctioned persons and the subsequent transfer of the proceeds for them, Ukraine needed a different mechanism.
Canada was the first country to implement such a mechanism. The 2022 revision of the Special Economic Measures Act gives Canadian authorities the executive power to order the seizure of property located in Canada which is owned by a foreign government or any person or entity from that country, as well as any citizen of the given country who is not a resident of Canada (article 4 (1)). The reason for the application of such measures may be “a gross violation of international peace and security, which has caused or may cause a serious international crisis” (Article 4 (1.1.)). The final decision on confiscation must be made by a judge, to whom a relevant representative of the executive branch sends a corresponding petition (Article 5.3). Furthermore, the executive authorities, at their own discretion, may decide to transfer the proceeds from the confiscated property in favour of a foreign state that has suffered as a result of actions to violate peace and security, in favour of restoring peace and security, as well as in favour of victims of violations of peace and security, or victims of violations of human rights law or anti-corruption laws (art. 5.6).
The first target of the new legal mechanism will be the Canadian asset of Roman Abramovich’s Granite Capital Holding Ltd. The value of the asset, according to a statement by Canadian authorities, is $26 million.
Roman Abramovich is on the Canadian Blocked List, i. e. his property is already frozen, and transactions are prohibited. Now the property of the Russian businessman will be confiscated and, with a high degree of probability, ownership will be transferred to Ukraine. This is a relatively small asset (from the standpoint of state property), but the procedure itself can be worked out. Further confiscations may be more extensive.
The Canadian experience can be copied by other Western countries. In the US, work on such a mechanism was announced back in April 2022. although it has not yet been adopted at the legislative level. In the EU, such a mechanism is also not finally fixed in the regulatory legal acts of the Union, although Art. 15 of Regulation 269/2014 obliges Member States to develop, inter alia, rules on the confiscation of assets obtained as a result of violations of the sanctions regime. The very concept of violations can be interpreted broadly. So, for example, Art. 9 of the said Regulation obliges blocked Russian persons to report to the authorities of the EU countries within six weeks after blocking about their assets. Violation of this requirement can be regarded as a circumvention of blocking sanctions.
There are several consequences of the Canadian authorities’ initiative.
First, it becomes clear that the confiscation rule is not dormant. Its use is possible and is a risk. This is a serious signal to those Russians and Russian companies that have not yet come under sanctions, but own property in the West. It can be not only frozen, but also confiscated. This risk will inevitably be taken into account by investors and owners from other countries, which could potentially be the target of increased Western sanctions in the future. Among them are China, Saudi Arabia, Turkey, and others. It is unlikely that the confiscation of Russian property will lead to an outflow of assets of these countries and their citizens from Canada and other Western jurisdictions. But the signal itself will be taken into account.
Second, the Russian side is very likely to take retaliatory measures. Western companies are rapidly withdrawing their assets from Russia. The representation of Canadian business in the Russian Federation was small even before the start of the operation in Ukraine. If the practice of confiscation becomes widespread, then the Russian side can roll it out in relation against the remaining Western businesses. However, so far, Moscow has been extremely hesitant to freeze Western property. While the US, EU and other Western countries have actively blocked Russians and their assets, Russia has mainly responded with visa sanctions. The confiscation could overwhelm Moscow’s patience and make the retaliatory practice more proportionate.
Finally, the practice of confiscation modifies the very Western idea of sanctions. It currently implies, among other things, that the “behavioural change” of sanctioned persons would result in the lifting of sanctions and the return of property. The freezing mechanism was combined with this idea. However, the confiscation mechanism contradicts it. Sanctions now become exclusively a mechanism for causing damage.
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