While Pakistan is fire fighting its own economic crises, the world around is moving fast towards a global meltdown of unprecedented proportions. Varying estimates and forecast of finance houses and economist send chills over an impending crises, the world is ill organised to handle. 

Meanwhile in Pakistan, there is no urgency. Many economist and banking experts argue that like the 1997crises of ASEAN, economic sanctions, and 2008, Pakistan may not get affected as it does not have sizable linkages with international financial dynamics. But come 2019 and the argument and notion of immunity could be complacent and flawed. Pakistan’s major lifelines of consumptive imports and foreign exchange are more tied to global economy than never before. 

In 1997, Pakistan’s economy was in a slowdown due to sanctions. IMF’s Structural Adjustment Fund (SAF) and Social Action Programmes (SAF) because of conditionalties curbed domestic growth but nonetheless resolved Pakistan’s immediate deficit concerns. Governance was bad and corruption at peak.

As studies proved, Pakistan was held together mainly by its neglected indigenous domestic production. The unregulated economy that provides jobs and sustenance at lowest levels was robust though the tax net was small. It was this unregulated sector that sustained Pakistan after the nuclear sanctions of 1998 till Pakistan’s Federal Reserve began building towards the end of 2000. This was mainly due to the infrastructure boon in the Middle East and remittances. 

Come Pakistan’s crises of 2007-8 and the domestic unregulated sector had almost been wiped out due to bad policies. Manufacturing and small industries capitulated due to cheap and sometimes competitive imports. Home led growth was drying out, agriculture sector being neglected and consumerism growing. Circular debt was peaking. A modern, result oriented industrial policy was non-existent since the 90s.

The rising federal reserves were mishandled by the ministry of finance and State Bank of Pakistan. With easy lending available against foreign currency accounts, speculation in property and stock exchanges grew. A windfall was created. Suddenly there were too many wheels on the roads. Circular debt in the energy sector grew. So did cartels proliferate? By 2008, Pakistan’s unprecedented reserves had been lost and IMF assistance became inevitable. Yet this bubble and development in Middle East insulated Pakistan from the 2008 global crises when crash of Lehman Brothers provided the precursor. 

But 2018 is different. Pakistan has changed for the worse from 2004-2018. Pakistan does not enjoy the micro stability at grass roots and unregulated sectors as it did in the past. Neither does Pakistan have windfall to boost it property businesses and stocks. Exports are below stagnancy while overseas remittances are dropping.  In the Middle East labour force has been taken over by India and other countries. Middle East development bubble has reached maturity. Now everything is a slump. This means lower salaries, hikes and layoffs. 

For over two decades, the FBR has not come up with any progressive taxation system. Pakistan does not produce enough for its own consumption. Heavy reliance on consumptive taxes made local economies regressive. Exports are dropping and remittances from overseas are declining. The economic uncertainty of past three months has already slowed growth. The agriculture sector that could have given a shot in the arm by mid-2019 still awaits pro-activism. Pakistan has no alternate sources of income. So, with a very slow growth, stunted irregular sector and unknown agriculture outputs, Pakistan unlike the past two global crises is least ready to buffer and cushion the global effects when they conflagrate. 

So what is happening at global level?

Some experts believe that the worst global financial crises have already arrived. Major currencies are in a ‘death spiral’. Many global stocks have crashed and economic activity slowed down. Since 2008, the international debt bubble has grown from 9 trillion dollars to 63 trillion dollars. According to Christine Lagarde of IMF, the total value of global debt within a decade, in public and private sectors has rocketed to an all-time high of $182 trillion. According to IMF, the huge rise in borrowing by corporates and government at low interest rates did not transform to higher levels of research and development or more general investment in infrastructure. In the private sectors, the consumer and spending spree through easy borrowing has been unprecedented with many risks.

The implosion has already begun while currencies are in a meltdown.  In 2018, at least 20 different currencies have fallen by double digit percentages against the US dollar. These include South America, Turkey, South Africa, India and China. So far USA, insulated by protectionism has not felt these ripples. The concern is that if USA sleeps, the world sleeps. 

The sternest warning has come from former Prime Minister of UK, Mr. Gordon Brown. He said that the ‘leaderless world’ is on the verge of economic collapse and that the world is in danger of ‘sleepwalking into a future crisis’.  He is doubtful if the global cooperation seen in 2008 crises between central banks and governments would be possible in a post-2018 crisis. In his assessment, the biggest casualty would be the breakdown of trust between USA and China. He blamed US protectionism as the biggest impediment to global cooperation. Gordon Brown admits he doesn’t know what would cause the next meltdown, but believes it is imminent. It could begin with a black swan. 

A lot depends on how the world handles the Khashoggi Crisis. The world has far too many financial stakes tied with Saudi Arabia than imaginable. The perpetuators of this gory murder have gone to extremes of brutality, brinkmanship and blackmailing. So far the world reaction has been of disgust and dismay. It is to wait and see what wins; politics or ethics? 

It is difficult to disagree with Gordon Brown. He said that local, national and global issues were being relegated. The world in fact was at war over trade, climate change and nuclear proliferation. The race for space wars has already begun. USA, Russia, China and India are taking leads. Everything including economic risks is becoming reckless. 

As if Pakistan’s home-grown economic crises were not enough; external factors particularly from Middle East would hurt Pakistan even more. It is from Middle East that Pakistan gets most of its oil and gas as also the remittances that equal Pakistan’s exports. Rising energy import bills and layoffs of Pakistan’s manpower would have a twofold ripping effect on the economy. 

In the past decade, Pakistan has done nothing to boost local energy resources. For some unknown reasons, oil, gas and coal exploration has remained below par. The twin LNG deals with Qatar are lopsided. Therefore with strangulated environments, Pakistan’s crises could only worsen. 

But there is a new silver lining. Bulk of investment in the Gulf, comes from financial, technology, services arms sale and governments. It does not focus on manufacturing, industrial development, and the nurturing of an independent private sector. A sustainable economy cannot exist on imported manpower and technologies. Consumerism and tourism have a culmination limitation. 

The Khashoggi tragedy may just have led the world to believe that it is better to invest in resource rich sustainable Asia. Pakistan with unfathomed resources, skilled manpower and existing industrial infrastructure may just become the most ideal investment destination.


The writer is a political economist and a television anchorperson