Globalization has made the world shrink into a small unit where action of one country can easily be felt by other countries due to connected deeds irrespective of borders. International affairs in general and economic activities in particular, among the countries are very important these days as they need to be understood for alignment with the changes coming rapidly. Great Depression of 1935 and global meltdown of 2008 are a few examples found in past, which depict that most countries feel the heat of the crises of global economic activities. Presently, Brexit and trade war between China and United States of America are becoming dangerous for world economy while situation of oil rich countries are also very unpredictable where Iran and Saudi Arabia were on the verge of a war, however, it has been averted for now.
Pakistan is already witnessing the slowdown of economy where inflation is on rising trend and growth rate is decreasing. World Bank estimates Pakistan’s inflation figure to touch 13 percent in year 2020 and GDP to come down to 2.4 percent. According to Government of Pakistan, it is strategically balancing the economy by controlling twin deficit i.e. Current Account Deficit (CAD) and Trade Deficit, which became the major factor for recent slowdown. Reportedly, twin deficit came down to a huge extent, however, it created twin costs i.e. rupee devaluation and interest rate hike, which have become a stimulant for businesses to shut down. Apart from that, anti-money laundering (AML) drive and increasing tax net to satisfy FATF (Financial Action Task Force) IMF are making business conditions worst. Both financial watchdogs are of the view that if Pakistan’s economy may become documented it will not only improve standards of financial transaction to track AML and terrorist financing but it will help Pakistan in achieving tax targets making Pakistan self-reliant. On the positive side, IMF applauded Pakistan’s efforts toward achieving set targets by the fund whereas FATF gave extension till February 2020 for making more sophisticated efforts towards AML while praising intentions of present regime.
The changing nature of economic competitiveness in a world that is becoming increasingly transformed by new, digital technologies is creating a new set of challenges for governments and businesses, which collectively run the risk of having a negative impact on future growth and productivity.
Pakistani policy planners need to look into this aspect rather urgently and try to frame such policies as would not only help innovate at least low- and medium- tech products in demand in world markets but also try to enhance their competitiveness. At a time of escalating trade tensions and a backlash against globalization, the importance of openness for competitiveness has grown manifolds. For example, those economies performing in indicators that denote openness such as low tariff and non-tariff barriers, ease of hiring foreign labor and collaboration in patent application among others also tend to perform well in terms of innovation and market efficiency. The global economic health would be positively impacted by a return to greater openness and integration. However, it is critical that policies be put in place to improve conditions of those adversely affected by globalization within countries.
When the global trade activities are slowing down it is affecting the international commodity market where prices of products will witness a decreasing trend helping Pakistan, which is an import based country so far. Due to this slowdown in developed world, interest rates are decreasing considerably contrary to Pakistan; therefore inflows under FDI or bonds can also help Pakistan to address foreign reserve issues at lower cost of funds. Presently, twin costs i.e. rupee depreciation and interest rates are hampering business activities of Pakistan which were introduced to control Current Account Deficit. If currency is stable and interest rates are lowered, benefits can be passed on to Pakistani business community. Another important aspect is the documentation of economy and simplified tax regime so that tax collection may be increased, which will help government in lowering the rate of indirect taxation resulting in disposable income of individuals to grow. It will help people save the money and documentation will led them to deposit this money in the banks, which will further create credits i.e. loans to private/public sectors for economic activities.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]