Dear Colleagues! This is Asrar Qureshi’s Blog Post #858 for Pharma Veterans. Pharma Veteransaims to share knowledge and wisdom from Veterans for the benefit of Community at large. Pharma Veterans Blog is published by Asrar Qureshi on WordPress, the top blog site. Please email to asrar@asrarqureshi.com for publishing your contributions here.
Global View
It is anticipated that global economic growth will gradually recover over the next five years, following the impact of the COVID-19 pandemic. The pace of recovery may vary across regions, depending on factors such as government policies, business resilience, and structural changes in industries. Emerging markets are expected to experience solid growth, driven by increasing consumption, urbanization, and technological advancements. These markets could become key drivers of the global economy, with countries in Asia, such as China and India, playing a major role. Trade dynamics are expected to evolve, influenced by geopolitical considerations, and changing global trade policies. While protectionist measures adopted in recent years may continue, there may also be efforts to revive multilateral trade agreements and reduce trade barriers. One seriously bad news for world economy at present is the Ukraine-Russia war in which all developed nations have taken sides. However, it is important to acknowledge that Pakistan faces various challenges, including a large informal economy, political instability, security concerns, and infrastructure deficiencies. Addressing these challenges effectively will be crucial for achieving the desired economic outlook in the next years.
Pakistan View
Pakistan Vision 2025 says, “Our ultimate destination is to see Pakistan among the ten largest economies of the world by 2047 – the centennial year of our independence”. This is what Jim Collins calls BHAG – Big Hairy Audacious Goals. The report also recognizes that Pakistan today faces formidable social, economic, security, and governance challenges. The Vision sets out Sustainable Development Goals – SDGs, of zero poverty and hunger, universal access to health services, education, modern energy services, clean water, sanitation, joining the league of Upper Middle Income countries – UMICs. 2025 is quite near but none of the SDGs are near achievement.
Economic Survey published last year says this for Pakistan economy. “Though economy recovered from the pandemic (a 0.94 percent drop in FY2020) and maintained V-Shaped recovery by posting real GDP growth of 5.97 percent in the fiscal year 2022. This high growth, however, is unsustainable and has resulted in financial and macroeconomic imbalances. Historically, Pakistan’s economy had shown periodic ‘boom-bust’ growth cycles. The reasons for such volatile growth cycles include the wide-ranging economic challenges like shrinking fiscal space, exchange rate pressure, mounting current account deficit, inflation, energy sector bottlenecks, and the absence of a supportive environment for the private sector. Political instability in the country also led to a huge increase in economic uncertainty. Uncertainty at individual, firm, and government levels is negatively affecting the economy. Political stability can reduce uncertainty by making clear policy statements to build the trust of domestic as well as foreign investors and the business community. However, a surge in global commodity prices is exerting pressure on imports by significantly pushing up import payments. Resultantly, the sizeable trade deficit of US$ 32.9 billion during July-April FY2022 was partially financed by significant workers’ remittances. Thus, in the period under discussion, the current account posted a deficit of US$ 13.8 billion compared to a deficit of US$ 0.5 billion during the same period last year. The widening of the current account deficit together with a build-up in inflationary pressures in the backdrop of the geopolitical situation (especially the Russia-Ukraine conflict) has created significant challenges for sustainable economic growth. In addition, the recent emergence of domestic conditions (including political instability) is eroding business confidence. Thus, all in all, inflationary and external sector pressures have created macroeconomic imbalances in the economy.”
International View
A report published in April 2023 in United States Institute of Peace – USIP publication presents this picture. The article written by Shahbaz Rana is titled, ‘Pakistan’s Existential Economic Crisis’.
“As of December 2022, Pakistan holds external debt and liabilities of $126.3 billion. Nearly 77% of this debt, amounting to $97.5 billion is directly owed by the government of Pakistan to various creditors; an additional $7.9 billion is owed by government-controlled public sector enterprises to multilateral creditors. Pakistan’s creditors fall in four broad categories: multilateral debt, Paris Club debt, private and commercial loans, and Chinese debt. Pakistan’s main multilateral creditors include the World Bank ($18 billion), the Asian Development Bank ($15 billion) and the IMF ($7.6 billion). Pakistan owes smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank as well. Pakistan owes $8.5 billion to the Paris Club, a group of 22 major-creditor countries. It also holds a large amount of private debit, in the form of private bonds, Eurobonds, global sukuk bonds amounting to $7.8 billion. And there is around $27 billion Chinese debt. In 2024 – 25, Pakistan’s debt servicing will likely be around $24.6 billion. In order to repay its debt and avoid a sovereign default, Pakistan’s earnings from exports, foreign direct investment and remittance inflows from foreign workers are vital. However, all three inflows are projected to not keep pace with the import bill as well as the mounting debt repayment pressure. There is a real danger that nuclear-armed Pakistan with a population of nearly 230 million people may be unable to meet its external debt obligations — which will trigger a sovereign default. To avert this scenario, Pakistan needs IMF’s continued support as well as help from Chinese and Middle Eastern partners. Pakistani leadership has been asking the United States to intercede with the IMF, but that effort hasn’t borne fruit in the way they hoped for.”
Madiha Afzal’s article published in Brookings in January 2023 is titled, ‘Pakistan: Five major issues to watch in 2023’. The list goes like this.
- Political instability, polarization, and an election year – Politics will likely consume much of Pakistan’s time and attention in 2023, as it did in 2022. For politics-obsessed Pakistan, the biggest question remains who will win the next general election. Regardless of the outcome, we can say this much given the histories of the main contenders: The direction of the country is unlikely to change.
- A precarious economic situation – An economic crisis comes around every few years in Pakistan, borne out of an economy that doesn’t produce enough and spends too much, and is thus reliant on external debt. Every successive crisis is worse as the debt bill gets larger and payments become due. This year, internal political instability and the flooding catastrophe have worsened it.
- Flood Recovery – Though billions of dollars of help have been promised by various governments for flood recovery, the road for recovery ahead shall be tough.
- Mounting insecurity – The state’s negotiations with the TTP have failed repeatedly, as they are bound to, because the group is fundamentally opposed to the notion of the Pakistani state and constitution as it exists today. The Afghan Taliban have, unsurprisingly, also not proved to be of help in dealing with the TTP – and Pakistan’s relations with the Afghan Taliban have deteriorated significantly at the same time over other issues, including the border dividing the two countries.
- Civil-Military relations – All eyes are now on how civil-military relations shape up under the new army chief. Under Bajwa, the military solidified its control over all manner of policy behind the scenes. With politics set to dominate the agenda this year and an election imminent, Munir has a chance to show the country whether he will follow in his predecessor’s footsteps, or chart a new course for civil-military relations in Pakistan.
Sum Up
Pakistan is passing through unprecedented times; the economy is in shambles, law and order is at its worst, security threats have mounted greatly, inflation is at an all-time high, and businesses are losing ground. This requires a Herculean effort, selfless consensus building, and rising above petty personal interests. We pray and hope it goes the right way.
Concluded.
Disclaimer: Most pictures in these blogs are taken from Google Images and Pexels. Credit is given where known; some do not show copyright ownership. However, if a claim is lodged at any stage, we shall either mention the ownership clearly, or remove the picture with suitable regrets.
References:
https://www.usip.org/publications/2023/04/pakistans-existential-economic-crisis