Daily Times Editorial 29 July 2020

Fast heating cold war

It is clear that Washington has decided to expose Beijing’s ‘designs’ as anti-west, whatever that means, and I now calling for the international community to isolate the latter. It’s biggest yes-man in the region is no doubt India, which is also at loggerheads with China, especially after the recent standoff in Laddakh region. Yet Pakistan needs to view the developing situation with caution, lest it gets dragged into the whole situation. It is, considering the circumstances, no surprise that China has just inked a multi-billion dollar pact with Iran, just when both are in the crosshairs of the Americans. China’s influence now stretches all the way from Russia to Iran, with Pakistan being a major pivot point in between.

China is also at the head of the two mammoth programs of the region – the Belt and Road Initiative (BRI) and now the program with Iran. Together these should provide livelihoods to hundreds of thousands, if not millions, of people, and keep the region both stable and strong. Islamabad must also consider signing up with China for the Iran pact, considering that it shares large borders with both countries and any incremental trade is hugely to the advantage of the finance ministry in Islamabad and the common folk in Pakistan.

Both the US and India have vehemently opposed CPEC, which is one part of BRI but a very vital part at that. Without it the land-locked Central Asian Republics (CARs) cannot possible trade via the sea at Gwadar. Pakistan, of course, can not just facilitate trade but also charge a premium on the goods and traffic. If a dollar earned through that trade also means a dollar earned for Pakistan, then all the better. Pakistan has just had its economy battered by the lockdown caused by the coronavirus pandemic. It needs all the help it can get with the revival. And China is usually our number-one stopping point whenever we are out to look for cheap money. It proved true only recently – just two years ago, to be precise – when the Imran Khan government came to power and needed easy money. Happily, our usual port of call did not disappoint us. And we got a hefty loan from Beijing, enough at least to keep us afloat in the near term. Everybody knows which side Pakistan will take in the fast-heating cold war between America and China, especially since Secretary of State Mike Pompeo has called for a global coalition against Beijing. That is all the more reason Islamabad needs to tread carefully right now.

Low remittances

Moody’s Investor Service (Moody’s) has just warned that Pakistanis either earning less or getting laid off all over the world will mean lower remittances, which will no doubt put immense pressure on both reserves and revenue. Usually one of the biggest contributors to overall revenue, remittances are the effectively the life and blood of Pakistan’s economy. But now that they are compromised, the overall Balance of Payments (BoP) situation could be in serious trouble. Clearly authorities are going to have a problem balancing the budget this year. Significantly, Moody’s mentions Pakistan as one of the countries likely to be most affected by this trend, which should at least make authorities plan in advance for the expected shortfall.

‘Lower global consumption after coronavirus to hurt consumption, raise external risks in major recipient countries’, said Moody’s. It turns out that remittance transfers will drop around 20 percent, which will no doubt impact the economy’s ability to handle all the building pressure and households’ capacity to survive and grow. Since this comes on the top of expected reduction in global trade, which will have its own impact on revenue collection, it is safe to say that the problems of a number of countries stand to be multiplied. Moody’s went on to say that Pakistan is among those countries for whom relief from import of lower oil prices offsets a drop in remittances of around 20 percent.

It is an understood and accepted fact that no country can perform without money in the bank. And along with exports, remittances are Pakistan’s biggest earners. Now, since both are stuck somewhere in the pipeline, the country stands to lose in more ways than one. Only a healthy economy can keep a country healthy. And it’s not just abroad that Pakistanis are losing jobs. They are doing the same back home and are pretty upset about it. Now more and more workers are facing the prospect of no jobs and lower earnings, which makes their domestic budgets simply unaffordable. Hopefully the government is aware of all this and will come out with a targeted relief package sooner rather than later, just like it has done a number of times in the recent past. For, such measures are now necessary to keep the economy solvent. Right now, it is not in a position to withstand the double-whammy of lower trade earnings and lower remittances.