LAHORE: The Institute for Policy Reforms (IPR) has said that Pakistan’s exports will suffer a twofold blow in the wake of Britain’s decision to leave the European Union.
“Consumer demand in Britain will weaken due to lower growth, while a cheaper pound will increase the value of foreign goods in the UK. Additionally, Pakistan’s main concern remains whether exports to the UK will lose duty concessions under the EU’s GSP Plus, and if so, when,” the IPR commented in a fact sheet released on Monday.
The report analysed the impact of Britain’s exit from the EU on the world economy and on Pakistan.
According to the IPR, the Brexit vote challenges the way economic policy has been run in recent decades. “Pakistan has already felt Brexit’s effect soon after the vote, as the PSX (Pakistan Stock Exchange) lost about 1,700 points and is still about a thousand points below its pre-Brexit level.”
In 2013, the UK was a strong advocate in Brussels for granting the GSP Plus status to Pakistan, therefore, the report suggested that the government must lobby the UK for its continuation as at over $1.5 billion the UK had a share of over 7% in Pakistan’s total exports.
“Worker remittances could also come down, especially if unemployment grows in the UK. Remittances from the UK are about 13% of the total,” it cautioned.
The IPR pointed out that Pakistan was one of the largest recipients of UK’s overseas development assistance and any prolonged slowdown in economic growth could lead the UK to reconsider its official development assistance and this could affect credit flow to Pakistan.
“Pakistan’s woes may also rise when spillover to other economies has an adverse impact.”
The IPR also looked into some of the reasons why UK voters opted out of the EU. The educated and skilled people voted to stay, while unskilled voted to leave. The campaign highlighted serious issues of immigration, globalisation and technology. “There was no debate on the real issue why some people cope better than others with open borders.”
The fact sheet pointed out that the recent policy worldwide had reduced investment desire in people.
Warnings about exit from the EU didn’t affect the leave voters as their options had been closed off long time ago. A uninformed debate placed the blame solely on the single market rather than on domestic policies.
Brexit’s economic effects partly depend on the method for separation to be adopted by the UK and EU. Both parties must try to quickly restore certainty in the markets.
Under EU law, Britain will have little say on the terms of its departure. An outline agreement that sets the contours of future EU-UK relations and the extent of their cooperation would help restore market confidence.
The fact sheet stated that after initial volatility, markets had recovered somewhat. Pound sterling is 10% below its pre-Brexit level and the London Stock Exchange index, FTSE, has recovered.
However, investment decisions are on hold in the UK, and partly in the EU. In fact, foreign investors may be pulling out of the UK. This may lead to loss of thousands of jobs and lower economic growth in the UK and EU.
Experts forecast a 30% chance that the UK will be in recession within a year, while access to capital for developing countries will squeeze as money moves to safe havens.
Published in The Express Tribune, July 5th, 2016.