- Amid inflation decline and stock growth, Pakistan’s economy shows resilience with signs of a brighter future
- From tariff wars to mBridg, global finance and trade evolve amid political unrest, reshaping economic systems worldwide
Interview with Dr. Ayub Mehar, an eminent economistÂ
PAGE: Tell me something about yourself, please:
Dr Ayub Mehar: Currently, I am serving as a professor at Iqra University Karachi. Before this, I served as Director General in the Federation of Pakistan Chambers of Commerce and Industry for 7 years, where I was designated as ‘Economic Advisor’ in the Economic Cooperation Organisation (ECO-CCI) in 2014 and the SAARC Chamber of Commerce and Industry in 2009. I am actively engaged in several international projects in economics and finance.
Recently, I have contributed 17 chapters on banking and finance in the “Encyclopedia of Monetary Policy, Financial Markets, and Banking” (Major reference works published by Elsevier Oxford: 2024), and completed a study on ‘Nexus of debt financing, investment, and policy intervention’ for International Business in Times of Crisis (16th volume in the PIBR series) in tribute to Prof. Geoffrey Jones, the Harvard Business School. I have completed various research assignments for the Asian Development Bank Institute Tokyo, including ‘Covid-19, digital transactions, and economic activities: The puzzling nexus of wealth enhancement, trade, and financial technology’, jointly published by the University of Cambridge (Judge Business School) and Asian Development Bank.
The Technology Policy and Assessment Center at Georgia Institute of Technology acknowledged my membership in the distinguished panel of international experts for Indicators of Technology-based Competitiveness, a project of the United States Government. I am an alumnus of the IAL Gummerbach Germany, where I received training in public finance.
PAGE: How was 2024 for the global economy?
Dr Ayub Mehar:Â Global economic conditions cannot be isolated from political and strategic scenarios. The economic alliances and patterns of economic development can be affected by the Russia-Ukraine war, brutality by Israeli forces in Palestine and Lebanon, the role of Iran in the Middle East, the revolution in Syria and its aftermath, and the rise of Trumpism with more aggressive style after elections in the United States of America.
US new elected President Donald Trump has threatened extremely high tariffs on Chinese products. This threat can open a tariff war, which can damage the free trade regime and globalisation. Though the increase in tariff will be a difficult decision due to domestic pressure by the importers and consumers in USA markets, while World Trade Organisation (WTO) will not allow a tariff war or protectionism. However, the implementation of non-tariff barriers and non-tariff measures are quite likely. Another important development in the global financial system belongs to the implementation of “mBridg” in global banking and remittances, which will provide an efficient substitute for “SWIFT” banking. China and other BRICS member countries going to adopt “mBridg” in mid-2025. It will reshape the global patterns of investment and remittances.
The repayments of debt and interest because of the heavy debt financing during the Covid-19 crisis pushed the developing and emerging economies to higher tax collection and conservative measures in public spending. The lower spending on subsidies, high tax rates, shrinking development activities, and use of domestic savings to finance fiscal deficits are the consequences of heavy debt financing during the last few years. Now, the repayment pressurised developing countries to impose more taxes which has resulted in devaluation, inflation, and unemployment.
These political situations and economic problems are creating uncertainties in global markets. However, global stock markets have not yet responded to these uncertainties. This is the point which reflects the positive side of 2024. Despite these uncertainties, the global economic losses are not much bigger as were expected. The perpetuity and continuity of economic activities and global GDP growth and trade volume indicate that political uncertainties have not affected the economic trends.
PAGE: Did the Pakistani economy fare well in 2024 vis-Ã -vis 2023?
Dr Ayub Mehar:Â The domestic scenario of Pakistan’s economy is not different from the global scenario. The visible signs of economic growth, a slight improvement in foreign direct investment, and a minor growth in exports reflect the betterment of the economy. However, the magnitude of economic growth is much smaller than the required growth in economic activities. The growth in the inflows of remittances has favoured the foreign exchange reserves. The major cause of the improvement in trade balance is the decline in import bills. This improvement does not prove the structural changes in exports.
PAGE: How would you comment on the challenges and achievements of the Pakistani economy in 2024?
Dr Ayub Mehar:Â Despite strong geoeconomic fundamentals, Pakistan is facing severe economic challenges. The stagnant economic growth, terrible debt crisis, currency depreciation, and growing poverty are severe economic challenges that can lead to social and political unrest.
I think it is too early to predict the achievement of the Pakistani economy. The global economic conditions and political scenario in Pakistan will determine the future of Pakistan’s economy. There are still several challenges including several environmental issues and consequent changes in weather conditions which can affect the agriculture and industrial output. The heavy burden and unequal distribution of taxes is another challenge that is hampering industrial competitiveness. The distribution of resources among the federation and provinces has also become important in the present fiscal scenario as international lending agencies have strictly emphasised the visible tax collection by provinces and the transfer of the burden of expenditure from the federation to the provinces. The rapid growth in government borrowing from commercial banks is another drastic side of economic issues. It shows the financing of fiscal deficit of the federal government by utilisation of public saving.
PAGE: How would you comment on the growth of the economy during the current year in the wake of the developments that took place in 2024?
Dr Ayub Mehar:Â The declining inflation is a good indicator, and it is expected that it will arrive at a single digit in the middle of 2025. However, expected GDP growth is still less than 3 percent which is an indicator that there is no improvement in employment and alleviation of poverty. Declining trends in interest rates may favor property prices and industrial activities.
The attractive growth in the stock market and the positive report by the Overseas Chamber of Commerce and Industry (OCCI) reflect the attractive scenario to induce foreign investment (both FDI and FPI). On fiscal front, tax collection is high but below the targets. Heavy taxation on the middle class creates troubles. Based on these indicators we can predict that macroeconomic conditions will be improved shortly, however, their trickle-down effect and improvement in socioeconomic conditions will take more time.