Shakeel Ahmad RAMAY
Pakistan is an economy of 305 billion USD1 with a massive market of 207.77 million2 people. The economy’s major strength is its resilience to internal and external shocks. This is evident from the fact that despite a direct economic loss of 1.16 percent3 of GDP on average from 2000 to 2013 due to disasters such as earthquakes and floods and a massive loss of 126.79 billion USD4 due to terrorism, the country registered a GDP growth rate of 5.79 percent5 in the financial year 2017-2018. Moreover, Pakistan is also set to become a major hub for inter and intra-regional economic connectivity through the China – Pakistan Economic Corridor (CPEC) flagship project of Belt and Road Initiative (BRI).
CPEC is also a major breakthrough for the development and diversification of Pakistan’s energy sector. Under CPEC, a financial outlay of around 35 billion USD6 has been made for energy sector projects including power generation and transmission projects. This will allow Pakistan to overcome its heavy dependence – around 64%7 – on imported fossil fuels and make Pakistan’s economy less vulnerable to price shocks in the oil and gas markets. In addition to providing a buffer against price fluctuations, a shift towards domestic renewable energy sources such as water, wind and solar projects will help curb the menace of environmental degradation. According to Global Climate Index (2019)8, Pakistan is the 8th most vulnerable country to climate change. Therefore, the expansion of clean domestic hydro, wind and solar projects will reduce the emission of greenhouse gases and consequently contribute positively towards the long term environmental sustainability of the country.
The hydro projects planned under CPEC will also have positive outcomes for Pakistan’s water management. It is estimated that the per capita availability of water decreased to 1,062 cubic meters in 2016 from 5,260 cubic meters in 19519. However, the cascade of dams that will be built under the hydroelectric projects will help combat the challenge of depleting per capita availability since the major issue Pakistan faces is that of water storage. Moreover, the construction of small and mega dams will allow Pakistan to formulate policies to better cater to the water needs of additional domestic, agricultural and industrial areas. Improved water management will, therefore, overcome a multitude of development issues such as water scarcity and food insecurity and contribute to the overall uplifting of the economy.
Pakistan, under the new government, is also devising a plan to diversify its economy and sources of GDP. To this end, the country is making use of the second phase of CPEC which focuses on expanding the industrial base for exports. However, for expansion in export base and destinations, Pakistan not only needs to enhance the competitiveness of its existing exports but also needs to introduce good quality national brands that are in line with the demands of the regional and global markets. In this regard, the increased connectivity provided by CPEC would play an important role by (a) allowing increased flow of market information into Pakistan and (b) providing an easy access to regional and international companies for showcasing its products along BRI. Pakistan is already benefitting from improved Sino-Pakistan trade integration which has increased the trade volume from around 4 billion USD in the year 2006-07 to 15.60 billion USD in 2016-17 showing an increase of 290 percent. Pakistan’s exports have jumped to 1.46 billion USD in 2016-17 from 575 million USD in 2006-0710. The recent agreement between China and Pakistan, under which the former agreed to bring down the import duties on more than 300 products would boost Pakistan’s exports to China. CPEC would consolidate the economic integration between the countries even further. An overall rise in the volume of exports would allow industries to invest in improvement of quality of export goods. This would prove beneficial for Pakistan especially in its dealings with the EU. Since the EU granted Pakistan the status of GSP+, Pakistan’s exports to EU have increased from 4.53 billion Euro in 2013 to 6.67 billion Euro in 2017 – representing a rise of 47.25%11. As EU is consumption oriented economy with demand for high quality products, improvement in Pakistan’s quality of products would result in a further increase in trade volume.
Apart from these markets Pakistan is now actively involved in exploring new markets like Central Asia, Eastern Europe and North Africa. The government is introducing a number of reforms to improve business environment in Pakistan. It is also trying to modernize its investment regime and provide maximum opportunities to investors.
Other than diversifying its export products and destinations, Pakistan is also trying to attract foreign tourists to enhance this sector’s share in GDP. This sector holds a lot of potential due to Pakistan’s scenic beauty and diverse culture. The country is bestowed with mountains, glaciers, plains, lakes, deserts, forests and beautiful beaches. In addition, Pakistan also has number of religious sites for Sikhs, Buddhists, Hindus and others. Recently Pakistan opened Kartarpur for Sikh community as a good gesture. This is why even with misconceptions about the country’s security situation; this sector was able to contribute 2.9 percent to the GDP in 2017. The World Travel and Tourism Council reported in 2017 that the sector’s contribution to GDP is expected to rise to 5.8 percent by 2028. The current government is, therefore, taking active measures to promote tourism and its associated sectors as this would not only benefit in terms of improving Pakistan’s image abroad but also and act as a source of income for a large segment of the population.
To further boost the economy, Pakistan needs to improve its trade balance by enhancing economic ties with unconventional partners. In this regard, Romania is important. Pakistan’s trade volume with Romania stands at around 90 million while its actual potential is reported to be 500 million USD. It could benefit from exporting surgical instruments, rice, footwear and agricultural products. Moreover, trade integration with Romania will serve as a means to improve Pakistan’s access to European markets and thus provide it an opportunity to boost its exports. Romania is faced with acute shortage of workforce and requires about 0.5 million workers. Pakistan must take advantage of the situation by inducting quality workforce in Romania. This will help address unemployment in Pakistan to some extent.
Similarly, improved bilateral trade with India could also yield economic benefits. Till now, trade between Pakistan and India has remained miniscule despite the fact that geographical proximity would make exchange of goods more cost effective as opposed to trade with geographically distant areas. According to analyses, increased trade between the two countries could help both the countries overcome their multiple developmental challenges. However, bilateral trade relations are shaped by their political disagreement over the issue of Kashmir as opposed to factors that are purely economic in nature. While India has been aggressively suppressing Kashmir’s indigenous uprisings against India’s forceful occupation and committing grave human rights’ violations, Pakistan supports the locals’ right to self-determination. The two sides, therefore, find it difficult to engage with the other under such circumstances.
Overall, despite a number of internal and external challenges to Pakistan’s economy, it has always demonstrated the ability to bounce back. This could be attributed to the huge strategic and economic potential of the country. With initiatives like CPEC and renewed interest in industrial growth, the economy is set to stabilize in the short run and take-off in the long run.
Member Advisory Board, CGSS, Executive Director, Zalmi Foundation
4 Pakistan Economic Survey 2017-2018, Pg. 248.
5 Pakistan Economic Survey 2017-2018, Pg. 4.
6 Pakistan Economic Survey 2017-2018, Pg. 210.
7 Pakistan Economic Survey 2017-2018, Pg. 211.
9 Water Security in Pakistan: Issues and Challenges. Development Advocate Pakistan, UNDP, Pg. 17.
10 Pakistan Economic Survey 2017-2018, Pg. 119.
11 Pakistan Economic Survey 2017-2018, Pg. 116.