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The Regulatory Cryptophobia of Pakistan

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The crypto sphere seems like an elusive topic in Pakistan’s financial debate. Blockchain technology is barely grasped by a layman, and it would seem that the country is not yet ready for the touted digital revolution. Yet, statistical data points in an absolute perverse direction. An estimated 4.1% of Pakistanis – totaling about 9 million people – own some form of cryptocurrencies. A research report by the Policy Advisory Board (PAB) of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) revealed that this cumulative ownership in cryptocurrencies amounts to $20 billion – twice the $10 billion in foreign reserves currently held by the State Bank of Pakistan (SBP). According to a report by Chainalysis – a blockchain data platform – Pakistan is ranked 3rd in the Global Crypto Adoption Index 2020-21 – just behind Vietnam and India. The report also reveals that Pakistan recorded the highest growth in cryptocurrencies – expanding at 711% – over the period 2020-21, overtaking India’s adoption growth of 641% over the same period. These industry dynamics imply that the base of active crypto participants is quite substantial. However, the regulatory structure of Pakistan is still trailing to accept any change in the status quo.

Early this year, the former SBP Governor Dr. Reza Baqir addressed the Annual Investment Forum in Riyadh. While he acknowledged that the blockchain technology would ultimately “Democratize Finance” for the general citizenry of Pakistan, he emphasized that the accompanying risks are far too flagrant to overlook. He stated: “In Pakistan, we as the central bank have reached a conclusion as of now that, for us and in terms of core objectives of the central bank, the potential risks far outweigh the benefits.” Recently, a committee under the directive of Ms. Sima Kamil – the SBP Deputy Governor (Financial inclusion, Digital financial services, and IT) – recommended a complete ban on cryptocurrencies in Pakistan. This insight signified a response to Sindh High Court’s (SHC) inquiry apropos of whether any form of cryptocurrency (or other related activities) should be permissible under Pakistani law. The committee echoed the concerns of Dr. Baqir, warning the court of law regarding the risks associated with the pioneering financial phenomenon of cryptocurrencies. The committee further opined that its risk-benefit analysis suggested that the risks override the benefits.

The committee report presented to the provincial court stated that cryptocurrency markets are highly speculative. Hence, poses risks such as financial fraud, transfer of illicit funds, and a convenient route for extortionists to evade litigation. Dr. Baqir highlighted other downsides of allowing cryptocurrencies into Pakistan’s mainstream financial operation. He stated: “Because of their [cryptocurrencies] speculative nature, acute price fluctuations, and most importantly, their distributed and decentralized nature, they can pose a risk to financial and monetary stability.” He further added: “Because of their anonymous nature, some cryptocurrencies are prone to be used for illegal economic activities.” The statements of Pakistan’s front-running economic policymakers and litigators reveal that they don’t disregard the positive attributes attached to the crypto sphere. However, they are also aware of the prohibitive costs that could dent the economy if the phenomenon eludes the regulatory grip – which is the value proposition of virtually all cryptocurrencies.

All the reservations are justified – at least to some extent. The recent meltdown in the crypto market is a befitting example of the inherent price volatility that could upend traces of stability overnight. More than $300 billion got wiped from the markets in a span of four days – primarily due to heavy speculation. Decentralized digital currencies are predominantly speculative and thus, have not been formally adopted by any major emerging economies. China, Russia, and India for instance. All three countries are quite literally the living embodiment of ideal developing economies. Each has taken restrictive measures against the crypto industry despite hosting the lion’s share of crypto enthusiasts. China has already banned all crypto mining activities and barred commercial banks from associating with crypto transactions. Russia – hosting a majority of bitcoin miners – is planning to launch its own digital currency while debating a ban on private cryptocurrencies. Albeit not explicitly prohibiting crypto services, the Reserve Bank of India (RBI) has actively asked its stakeholders to “exercise caution” when dealing in cryptocurrencies until a facilitative framework defines regulatory clarity.  Moreover, even developed economies like the United States are still grappling with regulations to tame the complex crypto markets. Naturally, Pakistan is in no better shape to take on a new challenge when it is already against the wall due to various other financial perils.

Pakistan is already undergoing thorough reforms under the scrupulous IMF Program. On another front, Pakistan is still working to cajole the Financial Action Task Force (FATF) and exit the notorious gray list. The focal points of the reforms are the aspects of money laundering and capital flight that have been endemic to Pakistan for decades. Giving a green signal to the cryptocurrencies with anything short of an airtight regulatory framework could pull the rug from under the IMF loan program as tax evasion is quite a real possibility attached to the crypto market. Furthermore, a surge in money laundering in the guise of virtual wallets expanding beyond borders could plunge Pakistan into FATF’s black list – instead of escaping the gray list.

The rupee is down to record low levels against the US dollar. Inflation is raging in double figures. The policy rate is hovering at a regional high of 13.75%. And the stock market is in a bearish rut. Understandably, the industry stakeholders are infuriated by the prospect of a ban when hedging is the natural course of action. However, with unprecedented crypto price swings, modest technological inclusion, and a lack of pervasive financial literacy in Pakistan, a hasty diversion to cryptocurrencies could trip the already weakened economy into a consistent downfall. Thus, the only sensible option at disposal is the long-term plan adopted by the State Bank of Pakistan. Nonetheless, the crypto industry is rapidly expanding while the regulators are trailing.

Despite the skeptical regulatory outlook, thousands of Pakistani traders actively invest via crypto platforms around the globe. Many renowned crypto exchanges continue to operate in Pakistan through ghost partners – completely bypassing the regulatory framework. The regulators should understand that banning crypto transactions does not quite translate into no crypto activity in Pakistan. Without a comprehensive legislative framework, the crypto exchanges would continue to operate as a shadow of an underground (and unregulated) sector of the economy. Strict oversight does not reflect thorough regulation! Hence, Research on blockchain technology is essential to build the financial muscle necessary to tackle any regulatory loopholes and gradually allow the technology to normalize into orthodox markets. Instead of outright banning local crypto exchanges and levying fines, the State Bank (and government policymakers) should collaborate with the local visionaries and crypto enthusiasts to structure an inclusive environment.

A structured crypto ecosystem could actually serve as a lifeline for the debilitated economy of Pakistan. Facilitative regulations could exact crypto exchanges to incorporate Anti-Money Laundering (AML) protocols into their blockchains. A digitalized currency exchange system could also assist regulators in the crackdown on terror financing and fraudulent activities. And a system of crypto exchanges integrated with the Federal Board of Revenue (FBR) could even help broaden the tax net – gradually shrinking the budget deficit. Thus, official plans could venture into launching a Central Bank Digital Currency (CBDC) – a digital rupee offered by the SBP – or allowing private crypto tokens to operate legally. Either way, a collaborative environment would expedite the development of an industry-wide solution and could prepare the industry for the pros and cons that may follow. Whereas delaying the legislative procedure would only encourage the unregulated design to prosper. And soon, the sector would grow beyond the point of redemption.

The author is a political and economic analyst. He focuses on geopolitical policymaking and international affairs. Syed has written extensively on fintech economy, foreign policy, and economic decision making of the Indo-Pacific and Asian region.

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Another Sri Lanka?: Pakistan’s Economic Crisis

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Pakistan’s Finance Minister, Miftah Ismail warned of “bad days” ahead as he highlighted the looming economic crisis that the nation finds itself in. Addressing a ceremony at the Pakistan Stock Exchange, the Finance Minister blamed the economic policies taken by the erstwhile Tehreek-e-Insaf government for the dire economic state of the country.

A Nation in Crisis

Pakistan’s foreign-exchange reserves have shrunk by more than half in the past year, to just over $9 billion, or about six weeks’ worth of imports. In 2022, the Pakistani rupee has lost about 30 percent of its value against the US dollar. Furthermore, a rise in inflation and unemployment coupled with political instability has only made matters worse. The three major global rating agencies, Moody’s, Fitch, and S&P Global have downgraded Pakistan’s long-term rating from stable to negative, citing the country’s deteriorating economic position.

The current Pakistani government has blamed former Prime Minister Imran Khan for much of its economic woes. These accusations are not entirely unfounded. While he promised to rid Pakistan of its economic troubles, Mr. Khan failed to deliver. His regime saw an increased rate of inflation and widespread economic mismanagement. By March 2022, the country’s total external debt and liabilities reached $128 billion. Unemployment also surged with Pakistan Institute of Development Economics (PIDE) reporting 31% of the youth to be unemployed. The sudden dissolution of his government added fat to the fire, leading to political instability amid grave economic troubles. However, with a tenure of less than five years, blaming Imran Khan for all of Pakistan’s economic troubles seems far-fetched. Undoubtedly, the economy suffered under the Khan administration but this crisis stems from a much larger flawed system.

Economic Fault Lines

There are various structural flaws that can be located in the Pakistani economy that have time and again led to its unmaking.

The Khan administration is not solely responsible for the ongoing debt crisis. The IMF has provided loans to Pakistan on twenty-two occasions since 1958, imposing 13 Structural Adjustment Programmes (SAP). The focus of these programmes has been to stabilise the economy while sacrificing growth in the short term. However, Pakistan’s growth rate has consistently remained the lowest in South Asia since the introduction of the first SAP in 1988. The sustainability and feasibility of these IMF bailouts have also been brought into question considering the frequent visits Pakistan makes to the IMF requesting for bailouts. For instance, the last bailout Pakistan requested was in May 2019, just three years before the current crisis. Furthermore, the China–Pakistan Economic Corridor (CPEC) created a debt of $64 billion for Islamabad which was originally valued at $47 billion in 2014. The excessive borrowing to resolve short term issues has majorly contributed to Pakistan’s economic troubles.

Another major issue with the Pakistani economy is the huge trade deficit that the country incurs. Pakistan’s trade deficit currently stands at $48.66 billion, a record high. This enormous trade deficit has resulted from lack of exports in the face of steadily growing imports. As the industries fail to meet the requirements of the domestic market, Pakistan has to rely on imports for bridging the gap. Similarly, the exports suffer due to low productivity of agriculture and industries. According to the International Labour Organisation (ILO), Pakistan is ranked 143 out of 185 countries on labour productivity, having its GDP per hour worked at a measly $6.3.

Poor fiscal management and failure of the private sector to adapt to innovations has further shackled the Pakistani economy. All of these issues have contributed to the ensuing political instability.

Another Sri Lanka?

The past few months have witnessed the collapse of Sri Lanka from one of the top performing economies in South Asia to its descent into anarchy. With Pakistan in a similar crisis, it is widely argued that the country might be on its way to follow the island nation into a harrowing economic collapse. With the fate of Sri Lanka at display, it is also feared that escalating political instability might lead to an eventual military rule, as has been the norm in Pakistan.

While the situation is bad and might worsen in the coming days, Pakistan is unlikely to follow the Sri Lankan trajectory. The revival of a 2019 bailout with the IMF on July 13, clearing the way for about $1.2 billion, comes as a relief for Pakistan. This much needed help will allow the country to look for alternative channels to bridge the financing gap. The Pakistani military has also been playing an active role in stabilising the situation, with Army Chief Qamar Bajwa seeking financial help from friendly countries including UAE and Saudi Arabia. The involvement of such external lenders should discourage major creditors like China from requesting immediate repayments, easing the pressure on Islamabad. However, this requires the Pakistani government to keep a check on the steadily increasing imports.

While the present measures are likely to provide respite for now, even in the unlikely scenario of a Sri Lanka-like complete economic collapse, the military would not let the political situation in Pakistan slide into anarchy and is likely to take over by dissolving the government in the worst case.

The Way Ahead

Even though Pakistan might just evade the crisis through IMF involvement and bettering the trade deficit by curbing imports into the country, these are measures that tend to serve short term purposes and are no guarantee against another similar crisis in the coming years. The only sustainable answer would be initiating structural reforms. A self-sufficient economy must be at the heart of a rebuilding project. Increased productivity will facilitate an increase in exports while decreasing the imports on basic commodities like food and medicines. Finding economic stability is also detrimental to which path Pakistan’s politics will take in the future as the shadow of military rule looms large on the dwindling democratic set up which has managed to keep it in the barracks since 2008.

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What Is Stopping Economic Development Across The Free World?

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Notice the big events of economic booms during the last century and observe the unique role of mobilization of entrepreneurialism on such trajectories. For example, the original Silicon Valley of the USA was not a technology or financial revolution but the mobilization of an entrepreneurial journey, way before the term ‘IT’ became popular, and ‘technology’ conceptualized as worthy enough to trade in billions while staying invisible. The out-of-box thinkers came out of their garages, broke old systems, created new alternates and changed the world forever. Revolution of entrepreneurs, created by entrepreneurs and for entrepreneurs. The rest is history

Today, some 100 other nations are still trying hard with their own version to become the copycats. The existing lukewarm failures around the world on the replications of “silicon valley” of sorts, already speak volumes. Remember, only measured by entrepreneurialism, such goals, unless once Mindset Hypotheses properly understood this entire subject already beyond common narratives on economic growth.

Real economic development always needs methodical advancements of national mobilization of entrepreneurialism, upskilling and uplifting SME sectors to quadruple exportability otherwise, growth and productivity remain stagnant.  The big challenges are to bring the entrepreneurial thinking and job creator mindsets blend across the economic development teams on a fast track basis. Their current frame of mind critically needs uplifting so their confidence level stands up to the global quality, demands for speed and execution able to tackle the power of global competitive forces.  

Neither across the world, during the entire last decade, did academia build neither the long awaited Fourth Industrial Revolution nor did the bureaucracies digitized, mobilized and uplifted SME economies. Where is the entrepreneurial mix in all such equations? What have the economic development teams really learned recently?  When will they get ready to advance their thinking and blend their efforts alongside the entrepreneurial engines and right mindsets?

When 100 plus nations, talking about digitization, are still trying to figure out mobilization of large sectors of their SME economies, with little or no progress, lingering questions arise. Necessitated now, are some newly mandated activities at every stage of any economic development in progress. Identify and rearrange right mindsets, for right challenges. What worked, last many decades, today, with no results, now ready for thrown out of windows? How long unlimited printing of currencies last, how high will inflation go and how long the recessions last?

The post-pandemic technologically advanced world,  Best option is to balance mindsets and cause change, adjust to global age demands on productivity and performance, otherwise accept a diaper change, surrender to face frailty of life and limits of minds. It is not the absence of expertise that is a problem, it is the mindsets unable to recognize such expertise, in the first place.

The invisible switch: There is no political power unless there is a parallel economic power; after all, there cannot be any economic power without entrepreneurial job-creator-mindset power. Economies without digitization are as if without electricity, economic development without upskilled frontline teams as if without a bulb. Study the solutions via Mindset Hypothesis

The 4B factor: Four Billion on the march; billion displaced due to pandemic, billion replaced due to technology, billion misplaced in wrong jobs now a billion on starvation-watch. The 4B Factor, this digitally connected mass of people making this now the biggest force of global opinion in the history of time.

Global opinion v/s national public opinion: Observe, how fast the world changed, how the ocean of global opinion is now drowning ponds of national opinion. Notice, nations are already so intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. Study the global tidal waves.

Study the Agrarian Age to Industrial Age, later to Computer Age, measure how most talented ‘cow-hands’ were suddenly replaced by steam power and hydraulics and later floors filled with clerks replaced by a single computer. Study “How did we arrive here so suddenly” Excerpted Source: Naseem Javed, Sunrise, Day One, Year 2000. Published, IABC Communications World, Dec. 1995, Volume 12 Issue 11, Article, ‘Chronology Charts’

Over centuries, despite, available like an open book, the government failed to create armies of entrepreneurs but was always successful in creating real armies and real combat soldiers. Simply because, soldiers trained by sleeping in the forests while digging trenches in the rain, but not trained by running around in classrooms with water pistols or drawing pictures of tanks. 

Entrepreneurialism is neither academia born nor academic centric. Let the professors teaching entrepreneurialism break the furniture in protest, their contributions, as theories are excellent only when free, but not for heavy cost and creating student debts. Today business education is more a liability and no longer a real asset. The world changed, minds opened, old-systems closing, new worlds arising with new definitions erupting to manage the future better.

Go build an airline, place aeronautical engineers, and frequent flyers in the cockpits but leave qualified trained pilots in the airport lobbies. Now glued to the radio to find about a crash understand the similarity to current pending financial crashes, nation by nation. As a test, best check out what percentage of entrepreneurial job creator mindsets are in the mix with job seeker mindsets of any local, national economic ministry anywhere in the free world.

Save economies and grab the solutions: They can rapidly upgrade and acquire Mastery on National Mobilization of Entrepreneurialism,learn its pragmatism and common sense deployments within months, acquire digitization, mobilization and most importantly to articulate on such advanced new thinking across the national agenda. Learn fast, fail fast, raise fast and shine. Study how Expothon is tabling such ideas globally. 

Today, a shipload of some 7000 economic development officers, representingalmostthe total of top teams spread across free economies of the world should now take a luxury cruise, relax, relearn, unlearn, as their current mathematics is causing serious maladjustments on creating grassroots prosperity for some 100 nations. How fast can this force of 7000 people on a luxury cruise be upskilled on National Mobilization of SME Entrepreneurialism?

The difficult questions: How quickly options when infused with technology lead to mobilizations to discover new paths. Which economic leadership of free nations can display such transformation or even articulate on such critical topics? Which national or global institution is bold enough to face and debate such challenges? Which economic team is ready to test, explore, or try on such forbidden topics? Nevertheless, the world changing fast and will not stop for anyone.

Observing the change, it will not be the sudden arrival of missed Fourth Industrial Revolution; but the surprised arrival of the First Industrial Revolution of the Mind. Study deeply how the mind is opening up and responding to creative entrepreneurial issues, the old concept already dead, now replaced with new thinking. Leaving behind the woman entrepreneurs is another tragedy for any nation. What are some new solutions

Just like today, we no longer tolerate square wheels or rotary dials, or chasing a form stamped 10 times, across a 10-floor building without a lift. The post pandemic economic recovery in smoke and mirror war games, will no longer tolerate the inefficiencies and bureaucracies. Of course, today, the ability to face the truth now considered extraordinary strength. Change can be beautiful, once minds opened.

Refusing to face the truth; this is where all the hostility and hate breeds,  and where without diversity and tolerance, wars and fakery declared the common games, this is when humankind left as secondary, common good declared waste, societies destroyed, so who needs economic development, anyway? A new wave of grassroots economic development will emerge as the top-level economic development almost already destroyed. Hear the sounds of distant firings. It will be the five billion connected alpha dreamers, who will develop and change the world. The rest is easy 

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The first Africa-Caribbean Trade and Investment Forum Comes On 1-3 September at Barbados

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With the new dawn gradually unfolding, African financial institutions such as the African Export-Import Bank (Afreximbank) are making tremendous efforts and offering support for African leaders in consolidating Africa’s economy within the framework of the African Union Agenda 2063. They have consistently been pushing to transform agriculture as the safest approach to reduce imports and insure food security, improve industrialization and the raise the efficiency of human resource capital in Africa.

The Government of the Republic of Barbados will be hosting the first ever edition of the AfriCaribbean Trade and Investment Forum (ACTIF) which is being convened by African Export-Import Bank (Afreximbank) and Government of Barbados in collaboration with African Union Commission (AUC), African Continental Free Trade Area (AfCFTA) Secretariat, Africa Business Council, the Caribbean Community Secretariat, and Caribbean Export Development Agency. 

The African and Caribbean ties are deep rooted and based on shared history, culture, and sense of a common identity and destiny that was forged by the slave trade creating large centres of African Diaspora in the Caribbean and elsewhere. While Africa and the Caribbean have renewed their engagement, with a Heads of State and Government Summit of the Caribbean Community and Africa, held on 7 September 2021, the relationship needs to be institutionalized through deepening of trade and investment ties between the two regions.

The holding of the inaugural Africa-Caribbean Trade and Investment Forum is, therefore, a key strategic deliverable towards the institutionalisation of the reborn relationship between Africa and the Caribbean. This Forum will further consolidate the political agreement reached by Heads of State and Government of the Caribbean Community and which aims to strengthen collaboration, unity and to foster increased trade, investment and people-to-people engagement between the two regions.

It is in this context that the inaugural Africa Caribbean Trade and Investment Forum (ACTIF), has been organized to hold during 1-3 September at Bridgetown, Barbados. The Forum dubbed: AfriCaribbean Trade and Investment Forum 2022, will hold under the theme “One People, One Destiny. Uniting and Reimagining Our Future” vividly reflecting the common cultural aspirations. 

The main goal of the AfriCaribbean Trade and Investment Forum is to provide a platform for the development of strategic partnerships between the business communities in Africa and the CARICOM Region with the objective of fostering bilateral cooperation and engagement in trade, investment, technology transfer, innovation, tourism, culture and other services. The Forum will also be used as a vehicle to actively promote trade and investment opportunities among people of Africa and the Caribbean, as well as the wider diaspora which will contribute to the implementation of the African Continental Free Trade Agreement (AfCFTA) and to the Caribbean trade development agenda.

Africa leaders and its people highly appreciate the readiness of external countries, who in practical terms, engage in infrastructure development, agriculture and industry especially at the dawn of the rapid geopolitical changes possibly leading to creating a new global economic order. Noting the significance, a number of countries are simultaneously trying to understand barriers in the region and are steadily exploring ways to leverage unto the newly created AfCFTA which provides a unique and valuable platform for businesses to access an integrated African market of over 1.3 billion people in Africa.

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