Economy of Pakistan and recent geo-strategic trends in the region and around the globe

Columnist Mehmood-Ul-Hassan Khan looks at Pakistan’s economy in the light of geo-political events in the region and the world.

Economy of Pakistan is passing through transitory phase. Thanks to the commitments of newly elected government, that much need economic continuity is promised and granted. The rapidly changing geo-political and geo-strategic scenarios at domestic, regional and international levels are conveying its visible and hidden messages to Pakistan’s economy and security. The gas pipeline project, visit of Iranian President, peace conference at Afghanistan, inclusion of Pakistan, as rough states by the US authorities, strict registration law (immigrants) against the Pakistanis living in America, BJP victory in Gujarat, unresolved issues of Kashmir, sectarianism, political manoeuvring/bargaining in the country and above all continued war against terrorism is posing very serious socio-economic threats to Pakistan.

Economy of Pakistan and Regional Politics
(a) The Turkmenistan-Afghanistan-Pakistan (TAP) Oil and Gas Pipeline project.
Pakistan, Turkmenistan and Afghanistan signed the much-awaited oil and gas pipeline framework agreement, giving final nod to go ahead with the project, which would provide first outlet to the hydrocarbon-rich Central Asian Republics. The Asian Development Bank has already committed $ 1.5 billion in technical assistance grant to support the feasibility studies and have programmed $ 1 million more during the next year. It will have very positive bearing on the overall peace and security environment in the region as well as the progress and prosperity of common peoples. It will be viable mega project for international investors, financiers, to create regional harmony and stability. The gas pipeline provides the shortest route for the supply of gas from the Central Asian countries to the outside world, especially the Far East and Japan will meet the future requirements of the South Asian, South East Asian and Far Eastern countries.
The 1400 kilometres pipeline would transport up to 20 billion cubic natural gas from the Dauletabad to consumers also in Afghanistan, Pakistan, and would be sold to India in the future. Estimated cost is US$3.2 and will be completed in 4 years. The project has significant potential for enhancing stability, improving living standards in South and Central Asia through cheaper supply of natural gas.

(b) Gas pipeline from Iran via Pakistan
Central Asia is very rich in natural and mineral resources and one of the basic motives behind the US attack on Afghanistan was to capture the trillion dollar resources of oil and gas. Russia has its own geo-strategic plans and compulsions about the dominant presence of US in the region. Russia’s Gazprom announced its plan to construct an undersea gas pipeline between Iran and India for exporting Iranian natural gas to India via Pakistan, just to counter the strategic moves of US and gain all the potential socio-economic benefits from the purposed gas pipeline. Without a doubt, if implemented, the Iranian-Pakistani-Indian pipeline project would be a very significant development both for its economic importance and political implications. Being a large and growing Asian market, India will be a major importer of fossil energy, including natural gas, in the 21st century. Iran’s securing access to that market will end its current insignificant gas exports to turn it into a major global gas exporter. The latter will provide the Iranians with long-term large annual revenues, a necessity for financing their numerous unfinished projects, estimated at 45,000, and for diversifying their oil-dependent economy and will provide Pakistan $800 million for safe passage per annum.

Recent visit of Iranian President Mohammad Khatami: Can be turning point.
The recent visit can prove a turning point not only in strengthening friendship and economic collaboration between the two countries but also in making an impact on the whole region and the Muslim World with substantial potential including laying of oil and gas pipelines, setting up of refineries, energy and communication sectors. Pakistan and Iran have agreed to enhance bilateral relations including co-operation in economic, trade, science and technology, defence and agriculture. The proposed gas pipeline from Iran to India via Pakistan is economically viable. The pipeline is proposed to be constructed through Pakistan to India from Iran’s natural gas fields. Pakistan has already given guarantee about the security of the pipeline, as Pakistan will also benefit in transit fee.
The communication and transport sector play very important role in the economic development of a country, which has been discussed, in the recent visit of Iranian President, which will link Iran and Pakistan with Central Asia and Europe. Iran would complete the needed work of optic fibre in three months to connect Iran with Central Asia, Turkey and the Gulf countries. Rail network from Kirman to Zahidan and from Zahidan to Taftan will be enhanced to establish an effective railway link with Pakistan, which, in turn, would connect Pakistan with Europe and will be less expensive to the businessmen of Pakistan to reach at the markets of Europe. Iran will also upgrade its railway links from Khurram Shahar, Basra and Syria, linking it with Turkey, to provide an effective network for promotion of trade with Europe to Pakistan. This trans-Asia railway corridor would also facilitate inter-country travel by citizens of regional states promoting friendship, understanding, economic prosperity and control menace of terrorism.
World has changed after the tragic event of September 11. Search for new friends, creation of new alliances and exploration of new markets and economies are going on and on around the globe. Every country has changed its geo-political priorities, genuine philosophical stances, and geo-strategic approaches to cope with the internal socio-economic problems and external compulsions. Pakistan is also facing all kinds of socio-economic problems in the recent times. The common concern of Pakistan and Iran over the extremist tendencies, particularly those reflected in the sectarian intolerance and violence, will certainly be viewed as confidence-inspiring between the two countries and rest of the Muslim world to bring peace and harmony in the world. The Muslim World owns nearly 70% of the world’s energy resources and representing a quarter of the global population, yet their collective contribution to the global economy being insignificant, so governments of Pakistan and Iran should cooperate in custom, trade, science and technology and other areas of mutual interest, in order to cement the trade and economic ties and also make arrangements to utilize the natural wealth of Muslim countries. There is huge market for export of automobile spare parts to Iran. Government of Pakistan has also given permission to many giant institutions like WAPDA, KESC, and many others to import oil from Iran which will decrease the cost of production and increase ratios of profits and Gwadar Deep Seaport, which is likely to be completed in 2004, could benefit Iran to establish linkages between the two countries to promote trade.

Afghanistan Declaration: Another Step Towards Regional Stability and Stimulation for Economy of Pakistan.
It is our national tragedy that we do not have peaceful neighbours. India and to some period Afghanistan are causing very socio-economic threats to Pakistan and posing unavoidable strains on the economic development of the country. The recent Afghanistan declaration emphasizes mutual respect for one another’s sovereignty and territorial integrity, economic cooperation and also commits the signatories to refrain from action that might jeopardize peace in the region. The foreign ministers of Pakistan, Iran, China, Uzbekistan, Tajikistan, and Turkmenistan attended the meeting. Representatives from the Group of Eight that includes India, Saudi Arabia, Turkey, the European Union and the Organization of the Islamic Conference were also present on the occasion.
Pakistan has deployed some 60,000-70,000 troops along the Afghan border, which is causing serious budgetary expenses to Pakistan. The continued political instability in Afghanistan has also cost Pakistan’s much anticipated trade and commerce opportunities in the Central Asian Republics. Pakistan is helping the government of Afghanistan in its pursuit of economic development and rehabilitation but still uncertainty in Kabul creates fears in the eyes of Pakistan.
It is estimated that 90% of Afghanistan’s export trade-comprised goods earlier imported, through official and unofficial channels. It also pointed out that $941 million worth of goods going out of Afghanistan in its illegal export worth $1.09 billion in 2001 made their way into Pakistan due to which the country is losing some 4 billion from the Afghan Trans-Trade System. This unchecked tendency has contributed not only to widespread smuggling of imported items into Pakistan, but also in serving as a stimulus to the growth of menacing evils of proliferation of illicit arms and drug trafficking, thereby leading to brutalisation of the Pakistani society. The government has prohibited the import of 24 items under the Afghan Transit Trade (ATT), while there are another 32 items prone to smuggling, which are yet to be banned. These re-enter Pakistan through the leaky borders between Pakistan and Afghanistan. The ban on 17 items under the ATT in 1996 proved successful as the local production of refrigerators soared to 250,000 units in 2001-02 from 168,000 in 1996 and local television production increased to 450,000 from 72,573 sets. The stability in Afghanistan will create numerous socio-economic benefits to Pakistan and reduce military expenses also.

China and Pakistan’s relationship may create balance in the region.
It is manipulated that closed socio-economic ties between China and Pakistan would create strategic balance in the region. The naval might and military craze of India, new version of US security concerns towards Asia, Central Asia and Far Eastern Asian countries may be checked with the assistance of China. The huge markets of China would be place of heaven and land of opportunities for common people and businessmen alike in the country. The bilateral economic and trade ties between China and Pakistan during the last two years has increased to $1.4 billion. Government of Pakistan is seeking the help of Chinese Government to develop the declining sector of communications, especially in railways, as it is the cheapest, reliable and environment-friendly medium essential for economic revival. Pakistan has learnt far-reaching financial and administrative reforms from China to boost the economy and as a result of these integrated and diversified reforms, foreign exchange reserves have crossed
$ 7 billion, credit rating has improved, stock exchanges are afloat, confidence of international donors has been high and Pakistan enjoyed confidence in the rank of nations. There are many purposeful and giant projects of national importance such as Saindak Copper Mining Project, Thar Coal, construction of dams and setting up of an electronic industry in private sector in Lahore, and last but not the least the project of Gwadar Port are being carried on which will bring socio-economic benefits to Pakistan.
It is encouraging that Pakistan’s exports to China during 2001-2002 increased substantially to $304 million as compared to $180 million. The progress in this direction could be further accelerated, considering the large size of the Chinese market. According to recent reports, Japan’s textile industry has also shifted a substantial part of its weaving and readymade garment capacity to China and thus the export capacity of China in these items has considerably expanded. Pakistan can export large quantities of cotton yarn and gray cloth to China to feed the weaving and finishing sector in that country. It is also established that Pakistan enjoys raw material advantage over China the cotton growing country.

Accent towards regionalism: Can SAARC save from the clutches of globalization?
There are many regional economic blocks working in the different parts of World. And SAARC is one of them. Pakistan’s exports to India has decreased from worth $101.138 million in 2001-02 against US$133.422 million last year, showing a decline of 11% while Indian exports to Pakistan decreased by 20.65% to US$186.521 million during the same period against US$235.086 million due to constant border tension and unfinished agenda of Kashmir and terrorism. Pakistan exports to Bangladesh declined by 24% to US$101.138 million during the financial year 2001-02 against US$133.422 million, while Dhaka exported US$27.740 million goods to Pakistan against US$33.491 million over the last year, showing a decrease of 17% but is now expected after the recent fruitful visit of Gen. Pervez Musharraf, the President of Pakistan that volumes of bilateral trade between Pakistan and Bangladesh will increase. Exports to Sri Lanka stood at US$72.119 million in 2001-02 against US$75.321 million, showing a decrease of 4.43%, while imports were US$28.454 million against US$35.356 million, registering a decrease of 19.52%. Exports to Nepal were US$2.382 million, to Maldives US$1.5 million, and Bhutan US$0.318 million.
Pakistan’s total exports to SAARC countries reduced to 15.55% during current fiscal year and stood at US$226.684 million against $268.430 million worth exports in 2000-2001. The total imports from the SAARC countries to Pakistan also shrank by 20% in the current fiscal year 2001-02 to US$244.097 million against US$305.359 million of the corresponding period of last year. Pakistan’s major regional trading partner during the financial year 2001-02 was India followed by Bangladesh and Sri Lanka while the other trading partners remained at a very low level. Dr. Mahater Muhammad, Malaysian PM writes in his book “ A New Deal for Asia” globalization is recolonisation and all the countries in the region should stand against that. It is predicted that after the complete implementation of WTO all the SAARC countries will have to open its economies and agriculture sector will be hardiest hit sector, therefore, it is wise option for all the member countries to have close and friendly socio-economic ties so that common people and governments could be able to compete with the other countries after the WTO.
There is great scope for mutual trade between Pakistan and Sri Lanka and Pakistan and Bangladesh. Sri Lanka can export its tea, garments, textiles, engineering and electronic goods. On the contrary Pakistan can export its engineering goods, such as electric fans, pumps, generators, electric metres, steel pipes and fittings etc. vehicles and agricultural products, particularly fruit.

A radical new threat from WTO and new US law of registration for Pakistan.
Government of Pakistan is generating huge revenues from customs, which is supposed to be the largest single source of revenue for Pakistan. Due to dawn of WTO and new laws made by US the ratios of customs revenues may vanish altogether soon and become a thing of the past. That may be the outcome of a move by the United States to do away with customs tariff altogether to make movement of goods worldwide easy and smooth by the year 2015, and prior to that bring down the tariff to five per cent by 2010. In Pakistan the customs tariff, which in the 1970s and 1980s had been as high as 120%, has been coming down. Two years ago that was 35%, and now 25% under external pressure. The customs revenue last year was Rs50.5 billion against the budgeted Rs69.6 billion and the revenue projection for the current year is Rs56.5 billion. Pakistan and other developing countries may be able to weaken or delay the abolition of import tariff, but will not be able to chunk that altogether. Government of Pakistan should prepare domestic industries for the serious challenges to come in the near future. The textile quota system will vanish by the end of 2004 and Pakistan’s textile industry will face severe and sustained competition from 2005 to onwards. Because of 2/3rd of Pakistan’s exports consist of textile items government should take every possible measure to save it.
The new US “Law of Immigrants Registration” is also causing very serious socio-economic problems to Pakistan. Is gift for Pakistan to fight as front line state against terrorism? Is it another administrative measure taken by the US establishment to pressurize Pakistan after its earlier announcement treated Pakistan as Rough State? Is it hidden reaction against the MMA government’s measures against FBI and presence of US army in NWFP and Pakistan? Pakistan may lose billions of dollars as reduction of remittances from US in the near future.

Economy of Pakistan: Role of Political Stability.
The political stability is a crucial factor for economic prosperity of a country. The main growth factors, imported whereas the political system cannot be imported. The examples of India, Brazil, Chile, Nicaragua, Denmark, Switzerland and four Asian Tigers all verify the utmost need of political stability in the country to foster socio-economic development. Thanks to the Prime Minister Mir Zafarullah Khan Jamali, who has skilfully withered all political snags to establish rule of the people in the country and given positive signals to foreign investors. He has successfully smothered all the hiccups. On the outset, realizing the pains and agonies of the nation, he has formed a special committee on investment under his own supervision a step that gives clear evidence of his vision on economic issues as well.
Pakistan’s per capita income is Rs. 4881($470) places the country at No. 160 among the countries of the world. 40% of people are living below the poverty line. 55% are not access to health facilities. 0.7% and 2.3% budgetary expenditures is allocated on health and education. Human Development Index of Pakistan is very low as compared to other countries i.e. 142 out of 174 countries. General Unemployment rate is 6.0% but disguised rate is 10.4%. Pakistan’s share in the world trade is stagnant at 0.2 % in the total trade of the world. The cost of doing business in the country is extremely costly and risky due to ever increasing utility bills rates, which is highest in the region and general law, and order situation is also not satisfactory, at least in Karachi, which may burst after appointment of ex-fugitive as a governor.
It is right that the foreign exchange reserves have crossed the unbelievable level of $9.00 billion, which is about three times higher than the best level in last 50 years. The current account is now in handsome surplus. The bilateral debt of $12.5 billion has been rescheduled to reduce its present value by 40 per cent. The external debt has been reduced from $38 billion to $36 billion. Even the exports have crossed the target of $10 billion. Standard and Poors has raised Pakistan’s long-term foreign currency credit rating from B- to B and the long-term local currency sovereign credit rating from BB- to B+. Pakistan’s credit ratings are much better than that of India. But all is not good. The latest country report of ADB on Pakistan concludes, “The declining development expenditures resulted in higher unemployment in Pakistan”. In FY 02 Public Sector Development Expenditure (PSDP) declined to 2.9 per cent of GDP. It has never been so low in the history of Pakistan. In prime of 1980’s PSDP was above 7% of GDP.
If newly democratic government wishes to serve the country she should have unshakable traditions of good governance, eliminate red-tapism, nepotism and corruption by pursuing further deregulation in the country so that economy may click. Government has to modernize the judicial system at all levels, strengthening capacity and effectiveness of the process of accountability across the board. The most worrisome aspect of our economy is that it had failed to create proper job opportunities for the youth. The rural population is being constantly pushed to below poverty line that makes all the targets of the growth unachievable. The industry and agriculture are the two sectors that can help the government create job opportunities.

Macro issues need to be sorted—out immediately.
Malpractice, corruption and mismanagement has ruined the treasuries of government and according to latest report Rs.1.2 trillion has been spent in last 2-3 decades but nothing has changed due to hijacking of economy by the elite group in the country. More focus should be given to resource generation, mobilisation and to create economic checks and balances in the diversified but integrated sectors of economy. The hasty and reactionary economic policies, lop-sided policy plans and their implementation, influence of the donor agencies, inconsistent private-public dialogues, faulty and incomplete statistical data, bureaucratic hurdles and insufficient infrastructure facilities should be removed at the earliest. The defence spending should be controlled via increasing the exports of arms. The issues of ‘Karachi and Kashmir’ are supposed to be responsible for the unsatisfactory economic growth of Pakistan. Violence in the coastal region of Karachi and the conflict with India, are directly responsible for the rise in poverty, declining private and public investment and the spread of intolerance in the country, which is polluting the true picture of Islam and Pakistan.
These macro issues have badly hampered the much-needed enhancement in the national productivity. Moreover, production of industries should be enhanced, increase and encourage FDI in industrial sectors, in this regard NBP has offered sick units for sale to foreign investors to foster the industrial revival programme. Foreign investment inflows are necessary for a developing country to sustain appreciable levels of growth. Malaysia, Thailand, Indonesia are major recipients of foreign direct investment and their economic and business policies are highly realistic. China is attracting more foreign direct investment than any other country. Western and Japanese investors are often attracted by China’s large and expanding market. FDI and FPI should be encouraged but not on the security or sovereignty of the nation as did in case of IPPs. There should be vast network of small and medium scale industries in the country to generate revenue, employment and reduce alarming ratios of poverty in rural and urban areas. Government should increase the PDSP by 2% to 5% of GDP by increasing taxes base and borrowing from the SBP on concessional rates rather than from commercial banks.
Shortage of water is posing very serious threats to agricultural output in the country. In Pakistan 90% of the agricultural output depends on irrigated water. However, almost 50% of the water released from the canal headworks is lost through ooze. If canals and distributaries could be lined with cement, much of this ooze could be reduced and the water availability to the crops correspondingly increased. The CBR collected only Rs 1.2 billion as GST on fertilizer whereas the national economy lost agricultural output of Rs 4 billion. Government should at its earliest lift the imposed GST 15% on fertilizer and pesticides and subsidize all the utility bills so that Pakistan may also be able to earn as Holland or New Zeland which are much smaller than Pakistan but are earning much more as % of GDP. If construction of Kalabagh Dam is not feasible then construction of smaller dams should be initiated as soon as possible because our national survival depends on it. Alternative sources of energies should also be explored i.e. instead of hydraulic electricity thermal means needs to be adopted. The solar and the wind energy systems should be initiated in the coastal areas of Balochistan.

Micro issues need to be sorted—out immediately
The micro issues like multiplicity and duplicity of taxes, numerous inspecting agencies, high taxation rates, high utility cost, high mark-up rates, expensive raw materials, irrational tariff structure, developing indigenous technological base, sick units and smuggling, sectarianism, intolerance, transparency, institutionalization of technical education, commonness of IT, and above all self-believe needs to be enhanced and should be foremost duty of the newly elected government. Without a strong base for scientific and technological education, the country would not progress. The countries like Korea, Taiwan, Singapore, Malaysia and Indonesia are prime examples, which have made quantum jump with better, scientific and technological education and manpower. It is also reality that without improving skills through acquisition of science and technology, Pakistan cannot have
5 % development growth rate. It is reality that the social stuff of the humanity has fallen in total disarray in the country. Rise of illiteracy, denial of health facility, defective judicial system, ambiguous process of accountability, uneven distribution of wealth, polluted environment, absence of meritocracy have badly tempered the very confidence of the nation in the leadership of the country.

Conclusion
Economy works in integration but in isolation. The recent rapidly changing regional and international geo-strategic scenarios, alliances and domestic socio-economic compulsions are casting its dark shadows on the economy of Pakistan. Conflict and usage of naked power achieve nothings and active diplomacy is the need of the hour. Political stability is the answer to all socio-economic ills and true but simple people supported version of democracy may succeed us to fall in doom and gloom. The disparity between words and deeds is also producing negative results and creating depression and oppression among the different ranks of the society. Rule of the law, and belief in pure and true merit, tolerance and harmony can also be vital to foster socio-economic development. The rise of social justice, elimination of corruption, emergence of accountability and birth of the golden doctrine of equal opportunity as said by modern bible i.e. “The Das Capital” may be supported by the quick economic revival strategies of the recent government. The secret of rise and fall of a nation as described by the famous historic book the “Fall of Roman Empire” lies in self-determination, sincere leadership, patience, hardworking, merit, harmony, sacrifice, and last but not the least proper system of checks and balances. Sincere leadership, social adaptability, regional alliances especially with China, Iran, resolution with India, visionary qualities, and PAKISTAN FIRST make all of us really independent from all socio-economic strains and financial dependencies.

About the Author

Worked as Officer Grade-II in National Bank of Pakistan. MPA from University of the Punjab, Lahore. Did various courses relating to banking. Contributed articles in various newspapers on various issues as a freelance writer.