Globalisation challenges: learning from the past

Globalisation is a deep-rooted phenomenon that has evolved through centuries, driving domestic economies of the countries by fostering financial activities and promoting interdependence, thereby capturing monetary benefits across the globe. The current one is the third phase of globalisation, marked by technological advancement and innovations. It has enhanced opportunities for a country to capture its due share in the global economy and ensure its economic prosperity by keeping pace with the growing demands of the modern era.

Pakistan started its journey as a sovereign state after independence from the British colonial rule in 1947 amid abundance of issues, the most pressing among them were a crippling economy, poor assets, lack of resources, etc. The nascent nation was brimful of enthusiasm to tackle the myriad challenges, despite political and constitutional crises. But it was not an easy ride. And now having attained maturity at 75-plus, Pakistan has gone through many experiences, mostly setbacks, in the realms of diplomacy, politics and economy.

Speaking of the economy, Pakistan has experimented with various policies — industrialisation and green revolution during General Ayub Khan’s regime; nationalisation during the era of Zulfikar Ali Bhutto; denationalisation under Gen Zia-ul Haq; and structural reforms post-1988.

Structural reforms too were attempted through various ways such as promoting the private sector but without regulatory restrictions, provision of subsidies and improved infrastructure, trade liberalisation, variations in interest rate, exchange rate depreciation, forex accounts seizure, free floating of the local currency but without first adopting a proper strategy against money changers, etc. In fact, ground realities were often neither taken into account nor segmented preferential attempts were made. Consequently, long-term benefits could not be achieved. To the contrary, investors’ confidence was eroded further.

To cater to the balance of payments situation, the first IMF loan, worth $25 million, was availed as Special Drawing Rights (SDR) during the Ayub Khan government in 1958 under the Standby Agreement. Every successive government followed suit for an economic bailout package. The current IMF programme is the country’s 23^rd. But the loans availed were never used to spur development and thereby the economic growth. And currently, our foreign debt stands at $124.3 billion.

Pakistan’s foreign exchange reserves started improving during Gen Pervez Musharraf’s regime. In year 2000, the reserves reached their highest, $16.486 billion, and the country was able to experience some sort of macroeconomic stability. Some external factors like 9/11 — which led to Pakistan becoming the frontline state in the US-led war on terror — served to strengthen the macroeconomic stability, as the country received monetary concessions and relief in debt payments. The government also took the opportunity to enhance exports, and the textile sector alone attracted more than $4 billion worth of investment. The IMF loans, availed at low interest rate, twice during Musharraf’s nine-year rule also supported economic growth. However, due to the assassination of Benazir Bhutto, the reserves fell sharply, causing loss of investors’ confidence. Under the successive governments though, the reserves again started rising, reaching $18 billion in 2021.

Currently, Pakistan’s economic growth situation is very ambiguous, despite trade agreements with many countries and membership of global trade organisations like World Trade Organization, World Customs Organization, Shanghai Cooperation Organisation, and South Asian Association for Regional Cooperation (SAARC). The trade imbalance, insufficient foreign currency reserves, reduced remittances, devastated infrastructure, uncontrolled hike in petrol, gas and electricity prices, a very small tax net and lack of strategy to prevent tax evasion by money-minting business community, agriculturists, industrialists and real states holders are the factors causing fiscal space depletion.

Moreover, the BRICS member states — Brazil, Russia, India, China and South Africa — are expanding the sphere of their economic growth and scope. China, the founding member of the bloc, is Pakistan’s closest ally. Through CPEC, in particular, China is facilitating Pakistan in many sectors of the economy. Recently, Pakistan has applied for the BRICS membership, and is seeking support from its member countries, particularly Russia.

Apart from this, Pakistan has, since 2014, been a beneficiary of the European Union’s Generalized Scheme of Preferences (GSP) Plus status whereby it is getting trade concessions. For the said status to continue, compliance with 21 core UN conventions is mandatory. The scheme was to end in December 2023, but it was extended till 2027 under the EU monitoring.

Currently, suffering from a serious balance of payments crisis (to the tune of $35 billion or so) and faced with a constant fear of default on its financial obligations, Pakistan has set up a Special Investment Facilitation Council (SIFC) to attract and facilitate foreign investors initially in sectors like defence, agriculture, energy, mines and minerals, and IT and telecommunication. Furthermore, SIFC’s collaboration with CPEC is envisaged as a milestone in terms of economic prosperity. However, the ongoing Israel-Palestine conflict is feared to affect the flow of investment in the near future. Thus, there is need to devise sound policies with strict compliance in order to sustain investors’ interest.

The opportunities ahead are promising, but in order to achieve economic growth, there is need to impose uniform tax on every sector of the economy, accelerate the ongoing digitisation of public sector organisations, ensure provision of incentives offered to investors and take steps to enhance export. There is also the need to continue pursuing the $3 billion IMF loan programme so as to cater to the balance of payments situation and send the right signals to financial markets.

Most importantly, political stability with smooth functioning of elected government is inevitable. Timely holding of free and fair elections, scheduled for February 8, 2024, will best serve to restore investors’ confidence.

Published in The Express Tribune, December 6^th, 2023.

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