Business Recorder (BR) Research
The China Pakistan Economic Corridor (CPEC) has been widely acclaimed as a game changer not only for Pakistan but also, for the region. It is expected to anchor the geopolitical shift of economic power in Asia and propel China, as the emergent economic super power. Its rise is expected to contest with the economic support from the USA, to the Indian economy. The lifting of sanctions against Iran can be viewed as an attempt by the United States, to create a bloc among India and Iran; to counter the growing Chinese dominance in the regions trade.
China is partnering with Pakistan to have access to geographically advantageous ports and to rebuild the Silk Route. Concurrently, the US exit from Afghanistan has diminished that country’s reliance on Pakistan as an ally in the war on terror. Instead, American focus is increasingly on economic marriage between India and Afghanistan.
In a nutshell, for a host of reasons; India, Iran and Afghanistan have issues with the huge investment promised by China, to Pakistan. Those countries are in an economic war and the interests are to capture trade routes and build their respective market shares in global trade.
Seemingly, India has the biggest grudge against investment in Pakistan. This is evident from the reactions of that country’s government as well as its media. The timing isn’t helpful either; Indian Prime Minister has risen to power on the back of a wave of Hindu nationalistic resurgence. Imagine, what could have been Pakistan’s foreign policy if one of the religio-political parties had emerged in power at the Center?
In the past few months, Pakistan’s perception in the international media has improved with news coming from every nook and corner about Pakistan as an economic jewel rather than a terrorist threat. The IMF, World Bank and other western institutions are talking good about Pakistan and sanctioning loans and grants at good pace. Rating agencies are improving country’s rating. These are demonstrating respect for economic and military leadership.
But very recently, news from international media emanating from New Delhi are exposing fragility in the economic recovery and exposing weak fundamentals. On Sunday, an article in Financial Times was full of negatives of Pakistan’s economy quoting leading economists and entrepreneurs about their reservations on the government’s economic policies. Interestingly, the article was co-authored by a representative in India.
The timing of that publication coincides with the failure to resume talks between the foreign offices of India and Pakistan. There is criticism on the Prime Minister over the signing of a press communiqué in Ufa, on the agenda of talks with nothing on Kashmir. Facing the retaliation, the foreign office cancelled the talk. Why didn’t they think through this knowing the military stance?
The problem lies within the government which at times, attempts to work in isolation without involving the relative stakeholders. The economic management at one end is spending heavily on marketing Pakistan’s economy and is eyeing on leveraging Chinese investment plans and the nod of the IMF to attract investment from other international avenues.
It recently spent around half a million dollar on publishing advertorial at The Economist on Pakistan to attract investors. But at the same time, FT published an anti-thesis to Pakistan’s growth momentum story, through quotations of top economists and businessmen. Dar should learn a lesson from this experience and bring leading economists onboard to engage in policy making.
The Finance Minister needs to understand that the biggest trigger to foreign investment is not the rosy picture portrayed by IMF, others and international media. Instead, it is the domestic investment which creates a cascading, positive effect. In other words, the government needs to encourage expansion by existing players. The policies have to support the enhancement of domestic production.
There is an economic war going on; and we are not doing great. Our exporters are at a disadvantage – overvalued currency, high cost of doing business and lack fiscal incentives are placing Pakistani producers at competitive disadvantage to regional players. India is surely going to use this to its advantage; they have already taken our share in rice and cotton yarn exports.
The utmost need is to support the country’s export-oriented industry. However, the government is naively ignoring it. The best way to deal with the hostile neighbour is to strengthen within. The political parties need to put aside their rifts in an effort to revive the economy. The government ought to be serious in implementing much-needed and awaited structural fiscal reforms. It has to have exchange rate policies that support industries.
The strength of CPEC is jolting our foes but the biggest woe to our economic revival is letting vested interests dominate and sway away in spirit from inclusive growth. Once we are on strong footing, we can better negotiate with other stakeholders.
Else, others will keep on obstructing our growth strategy. If it doesn’t grab access to Central Asia, India might lobby with Afghanistan to let not our goods flow through the route. Yes, China is building a route favouring Pakistan, but others have counter strategies. India can bypass Pakistan by routing through Iran to Afghanistan. Eventually, the Central Asian economies will hold the keys to the regions dominance
Pakistan has a strong advantage through China’s package and that money will come irrespective of Indian resentment. However, to realize this potential; the country must put its fiscal house in order and set aside political differences to drive inclusive economic growth.
This article is taken from Business Recorder (BR) research. It was published on August 25,2015.
