Imran Khan Government's Midterm Review: Economy and Foreign Policy

[RiazHaq]

Imran Khan Government's Midterm Review: Economy and Foreign Policy

Imran Khan's government has completed about half of its 5-year term it won in 2018. What are its accomplishments? Where has it failed in ter...

www.southasiainvestor.com

Imran Khan's government has completed about half of its 5-year term it won in 2018. What are its accomplishments? Where has it failed in terms of economy and foreign policy.

Economy:

Imran Khan inherited a serious balance of payments crisis cased by flat exports and record high imports in 2013-2018 period under Pakistan Muslim League (Nawaz) government. while the PTI government was still dealing with it, the country and the world were hit by COVID19 pandemic that devastated the global economy.

Pakistan's Trade July2020-Jan2021. Source: Arif Habib

The 2019 International Monetary Fund's bailout required the PTI government to significantly devalue the Pakistani rupee to make exports competitive, and to raise interest rates to slow down imports. These actions triggered inflation, particularly food inflation, as energy and fertilizer prices rose.


The global COVID19 pandemic hit Pakistan and the world while the PTI government was still trying to stabilize the economy. The global economy slowed down as a result of lockdowns imposed around the world to slow the spread of the novel coronavirus. It impacted South Asian economies but Pakistan was thankfully spared the worst of it.

Pakistan Vehicle Sales 1H FY20-21. Source: Arif Habib

Now Pakistani economy is finally stabilizing and a strong recovery is underway. The recovery is led particularly by the construction and manufacturing sector as evident from double digit increases in cement consumption and large scale manufacturing growth.

Foreign Policy:

One of Pakistan's key foreign policy successes is the US-Taliban Peace Deal. But now there is uncertainty surrounding it with the inauguration of President Joseph Biden. Biden's election and the growing rivalry between US and rising China have changed the calculus in South Asia and the Middle East regions, impacting Pakistan. Former President Trump's erratic behavior has also contributed to it.

Based on Biden's record as Obama's vice president, it is expected that the new US president will continue to support a stable Pakistan. A suggestion that has been made by former State Department officials Shumaila Chaudhry and Vali Nasr is for the US to take advantage of Pakistan's free trade deal with China by setting up value-added re-export units in the country.

Please watch this discussion with Faraz Darvesh as host and Dr. Owais Saleem, Sabahat Ashraf and Riaz Haq as panelists:

Related Links:





Haq's Musings

South Asia Investor Review




Pakistan Tech Exports Soaring

COVID19 Pandemic

Pakistan's Balance of Payments Crises

Pakistan Brings Together China, Russia and US for Aman21 Naval Drills

Pakistan Remittance Soar 21X

Pakistan's Growing Human Capital

Two Million Pakistanis Entering Job Market Every Year

Pakistan Most Urbanized in South Asia

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Riaz Haq's Youtube Channel

PakAlumni Social Network

Imran Khan Government's Midterm Review: Economy and Foreign Policy

Imran Khan's government has completed about half of its 5-year term it won in 2018. What are its accomplishments? Where has it failed in ter...

www.southasiainvestor.com

 

[RiazHaq]

#IMF on #Pakistan #economy: " The external current account improved, due to stronger-than-expected remittances, import compression, and a mild export recovery. High-frequency economic data also started to point to a recovery" #COVID19 #Exports #PTI https://www.imf.org/en/News/Article...tan-statement-by-imf-staff-on-pending-reviews


IMF staff and the Pakistani authorities have reached an agreement on a package of measures to complete second to fifth reviews of the authorities’ reform program supported by the IMF Extended Fund Facility (EFF). The package strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reform. Pending approval of the Executive Board, the reviews’ completion would release around US$500 million.
The COVID-19 shock temporarily disrupted Pakistan’s progress under the EFF-supported program. However, the authorities’ policies and allowing higher than expected COVID-related social spending, have been critical in supporting the economy and saving lives and households.
The Pakistani authorities remain committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve the EFF’s medium-term objectives.
An International Monetary Fund (IMF) team led by Ernesto Ramirez Rigo, concluded virtual discussions with the Pakistani authorities and reached a staff-level agreement on the second to fifth reviews of the authorities’ reform program supported by the IMF 39-month Extended Fund Facility (EFF) arrangement for the amount of SDR 4,268 million (about US$6 billion (press release 19/264). This agreement is subject to the approval of the IMF’s Executive Board. The reviews’ completion would release around US$500 million. At the end of the discussions, Mr. Ramirez Rigo issued the following statement:
“The policies and reforms implemented by the Pakistani authorities prior to the COVID-19 shock had started to reduce economic imbalances and set the conditions for improving economic performance. Most of the targets under the EFF-supported program were on track to be met. However, the pandemic disrupted these improvements and required a shift in authorities’ priorities towards saving lives and supporting households and businesses. To a large extent, the authorities’ response was enabled by the fiscal and monetary policy gains attained in the first nine months of FY2020. Aside from health containment measures, this included a temporary fiscal stimulus, a large expansion of the social safety net, monetary policy support and targeted financial initiatives. These were supported by sizeable emergency financing from the international community, including from the Fund’s Rapid Financing Instrument (RFI).

“As result of the authorities’ actions, the COVID-19 first wave started to abate over the 2020 summer and the impact on the economy was significantly reduced. The external current account improved, due to stronger-than-expected remittances, import compression, and a mild export recovery. High-frequency economic data also started to point to a recovery. Considering these improvements, the economy is projected to expand by 1.5 percent in FY2021 from the -0.4 percent in FY2020. Still, with the COVID-19 second wave still unfolding around the world, the outlook is subject to a high level of uncertainty and downside risks.

 

[RiazHaq]

#ImranKhan has prevailed by refusing to be bullied by the #Arabs. Western experts believe #SaudiArabia & #UAE, having tried to exert pressure on #Pakistan with little effect, are recalibrating their positions after #Trump's departure & #Biden's arrival.

Pakistan efforts to mend fences with Saudi-led bloc bear fruit

Islamabad also maintains strong ties with counter-alliance of Turkey and Iran

asia.nikkei.com

(James) Dorsey (senior fellow at the S. Rajaratnam School of International Studies in Singapore) told Nikkei Asia that Gulf states do not want to alienate Pakistan. "Pakistan is the second largest Muslim country, which hosts the world's largest Shiite minority population," he said, "and hence it's too important for Gulf states to ignore."

The senior fellow added that Pakistan's geography, particularly its coast along the Arabian Sea, is important for Riyadh now that uncertainty is emerging in regard to U.S. President Joe Biden's commitment to regional security. Biden took office a month ago.

And then there is the Israel angle.

"The Saudis want to recognize Israel but cannot do so easily," Dorsey said. "If Riyadh recognizes Israel, the biggest protest against the country will take place in Pakistan." Therefore, Dorsey said, Riyadh wants Pakistan to establish relations with Israel first.

"That is why the kingdom has softened its stance toward Islamabad," he said.

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James M. Dorsey, a senior fellow at the S. Rajaratnam School of International Studies in Singapore, told Nikkei Asia that several factors are at play, including Pakistan's Shiite population, doubts about the U.S. commitment to the region and Saudi Arabia's desire to recognize Israel.

After the Pakistan-Arab League rift emerged in August, Saudi Arabia and the United Arab Emirates asked Pakistan to repay $4 billion in loans taken out in 2018. Then in December, the UAE suspended the issuance of work visas to Pakistani nationals, a move experts said was designed to pressure Pakistan.

But last week the situation pivoted. Besides Qureshi's trip to Cairo, Saudi Arabia and the UAE each rolled over loans of $1 billion to Islamabad.

In addition, plans for a $10 billion Saudi Aramco oil refinery in the Pakistani port city of Gwadar appeared to move forward. Shahzeb Khan Kakar, director-general of the Gwadar Development Authority, has told reporters that planning for a mega oil city will be completed in six to seven months.

Experts believe Saudi Arabia and the UAE, having tried to exert pressure on Pakistan with little effect, are recalibrating their positions.

Dorsey told Nikkei Asia that Gulf states do not want to alienate Pakistan. "Pakistan is the second largest Muslim country, which hosts the world's largest Shiite minority population," he said, "and hence it's too important for Gulf states to ignore."

The senior fellow added that Pakistan's geography, particularly its coast along the Arabian Sea, is important for Riyadh now that uncertainty is emerging in regard to U.S. President Joe Biden's commitment to regional security. Biden took office a month ago.

 

[RiazHaq]

#Pakistan consumer confidence up 1.8% from Q3/20 to Q4/20. The index covers four key parameters -- household financial situation, country’s economic condition, unemployment, and household savings. #economy - Business Recorder

https://www.brecorder.com/news/40067439

Dun & Bradstreet Pakistan and Gallup Pakistan have issued their report on ‘Pakistan Consumer Confidence Index (CCI)’ for Q4 2020.

The Consumer Confidence Index stood at 90.3 points in Q4 2020, compared to 88.7 points in Q3 2020, translating into 1.8% quarter-on-quarter increase. This was driven by the improvement in current situation, up 14.9% q-o-q, which was magnified by a recovery from a low base as sentiments were severely dampened during the past 6 months due to COVID-19.

In contrast, future expectations deteriorated for the first time since Q1 2020 due to cautious optimism by individuals because of prevailing uncertainty amid resurgence in COVID-19 cases. Moreover, the overall consumer confidence in Pakistan has remained pessimistic in all four quarters of 2020.

The CCI report has been developed by assessing consumers’ confidence about the economy as well as their personal financial situation.

The index covers four key parameters -- household financial situation, country’s economic condition, unemployment, and household savings.

The index is a reflection of ‘current situation’ (economic changes felt in the last six months), as well as ‘future expectations’ (changes expected for next 6 months) of consumers across the country. The CCI ranges from 0 to 200, with 100 as the neutral value. A score of less than 100 indicates pessimism.

During this survey, optimism has improved for household financial situation, country’s economic situation and unemployment, while it has declined for household savings.

This is primarily attributed to consumers’ concerns about future household savings. This could have a cascading effect on asset related investments in the country, and overall spending by consumers. Perceptions about the country’s economy have improved consistently across all four quarters of 2020, highlighting upbeat consumer sentiments. Household financial situation was the most optimistic parameter, implying people’s household income seems to be rising after a decline due to COVID-19.

During Q4, household financial situation was the only CCI parameter to turn overall optimistic owing to improvement in current situation. While 33% consumers believe that their income levels will improve in the next 6 months in Q4 compared to 30% in Q3, 28% in Q2 and 32% in Q1.

In contrast, rising inflation and more importantly unemployment continue to drag consumers’ enthusiasm as unemployment remained the most pessimistic parameter. Despite an increase in overall optimism regarding unemployment, 3 out of 4 (73%) respondents believed that unemployment has increased in the last six months as compared to 77% in Q3.

During Q4 survey, 93% consumers believed that daily essentials have continued to become expensive/very expensive in the last 6 months compared to 91% in Q3.

On the whole, consumers across all provinces, location (urban and rural) and different age groups were relatively more optimistic for current economic situation than they were during Q3 2020 survey.

Nauman Lakhani, country lead of Dun & Bradstreet in Pakistan, stated, “The fourth issue of Pakistan Consumer Confidence marks the end of the calendar year 2020. The report compares changes in Consumer Confidence from Q3 2020 to Q4 2020. Current Consumer Confidence growth of almost 15% as compared to the last quarter is healthy, showing signs of recovery in Pakistan but consumers were cautiously optimistic as Future Expectations have declined by 6.0% as compared to Q3. I envision this Index to become a barometer of economic well-being in the Country in the years to come.”