Business

Pakistan on the brink of default, again

Published

2 years ago

Farwa

Pakistan’s time is running out. For decades, the country has run a system that needs near-constant external assistance. The system doesn’t deliver prosperity outside a tiny elite. Real incomes are, at best, stagnate. We barely export or save. If there is a strategy, it is waiting for someone to invade Afghanistan to extract geopolitical rents from them.

Underlying these decades-long challenges is a fundamentally changing society. For one: over the next 28 years, Pakistan will add about 132 million more people above its current population size. Pakistanis also now live increasingly in urban areas which reshapes how people interact with each other – opening new avenues for collective action and greater demand for public services. Add to this increased access to technology. The country is changing even if the economic system that governs them remains the same.

The changing dynamics demand sustained economic growth to improve lives, but our current system doesn’t allow growth. Whenever the economic growth rate exceeds 4-odd%, Pakistan’s import bill skyrockets pushing the country into a balance of payments crisis. This is a fundamental constraint in Pakistan’s growth model: nothing short of a complete break from the current trajectory will work.

Today, Pakistan is on the brink again. While a sovereign default is unlikely, what is clear is that Pakistan’s survival once again depends solely on the generosity of its few allies. This generosity might be eventually forthcoming allowing us to kick the bucket down the road for a few months – but then what? What happens a few months from now when once again we need more money to pay for imports or service our debt?

We need a radical break. There must be an immediate realization that the current economic system neither delivers growth for its citizens nor is stable enough to be maintained. Critically: even those who benefit from the current economic system, must realize that the system isn’t sustainable – even for growing their wealth. A different pathway requires a pro-growth coalition that pushes for reforms that can make real gains in Pakistan’s productive capacity.

What should such a reform agenda prioritize? I suggest three actions. First: Pakistan must discourage the capital stuck in real estate. Putting a large chunk of domestic savings into real estate takes capital away from sectors that can contribute towards exports (plots can’t be exported, alas). A great way to do this is by levying an annual tax on urban land. Not only would this raise revenue for public services but help allocate capital towards tradable sectors.

Second: We need deliberate and significant efforts to improve female labour market participation. Currently, only two out of 10 adult women are in the labour market; this is below countries of similar income levels. One way to do so is by investing in urban transport systems that would disproportionately benefit women as they face the highest mobility barriers.

Third: Pakistan should reduce policy-induced market distortions that are often in place to benefit vested interests. One example are the import duties that incentivize firms to sell domestically rather than attempt to innovate and compete abroad (a recent report by the World Bank calculates that a 10% import duty ups the profitability of selling domestically as opposed to exporting by 40%). By making the market a level playing field, we can incentivize firms to innovate and compete globally.

Pakistan is on a path to the abyss. In 1990, a child born in Pakistan would expect to live longer than a child born in India or Bangladesh. Today, that has been completely reversed. You’re better off being born in Dhaka or Chennai, than Lahore. This trajectory will continue if we don’t do something differently. Time is running out.

Business

The amount of trade between Saudi Arabia and Pakistan hits $700 million.

Published

8 hours ago

Farwa

Through the Special Investment Facilitation Council (SIFC), Pakistan’s trade connections with Saudi Arabia have grown significantly, with bilateral trade volume rising from $546 million to $700 million and exports to the Kingdom growing by 22%.

As bilateral economic cooperation continues to grow, Saudi investors have shown a strong interest in Pakistan’s construction, energy, agricultural, and information technology sectors. The objective for exporting IT services between the two countries has been raised from $50 million to $100 million.

Saudi Arabia has set up a help desk dedicated to making it easier for Pakistani IT companies to register in the Kingdom in order to expedite commercial procedures. The goal of this program is to speed up economic collaborations between the two countries and lower administrative barriers.

The well-known Saudi restaurant chain AlBaik has revealed plans to open locations in Pakistan, which is a big step for the food service industry and should lead to the creation of new job possibilities in the area.

Officials have noted that stronger business links between the two countries lead to greater economic stability, and the SIFC has played a crucial role in promoting these trade advancements. For bilateral trade and investment projects, the Council remains a crucial facilitator.

According to a trade official with knowledge of the developments, “the establishment of dedicated support mechanisms, such as the help desk for IT companies, demonstrates a commitment to long-term economic partnership,” The goal of these programs is to improve the conditions for commercial collaboration between the two nations.

The increasing amount of trade and the diversity of investment sectors show that Saudi Arabia and Pakistan’s economic ties are changing as both countries seek to deepen their business alliances in a number of industries.

Business

After more than 50 years, Bangladesh and Pakistan resume direct trade.

Published

8 hours ago

Farwa

After more than 50 years, the two governments will resume direct bilateral trade, with Bangladesh’s food ministry announcing Sunday that it will receive a supply of 25,000 tonnes of rice from Pakistan next month.

After former Prime Minister Sheikh Hasina was overthrown last August, relations between Bangladesh and Pakistan have begun to improve after decades of tense relations.

Since then, there have been increased bilateral interactions between Bangladesh and Pakistan. Nobel laureate Muhammad Yunus, the interim government’s senior adviser, has met twice with Pakistani Prime Minister Shehbaz Sharif.

According to the food ministry, Dhaka completed an agreement earlier this month to import grains from Pakistan.

“On March 3, the first shipment of 25,000 tonnes will reach Bangladesh,” Zia Uddin Ahmed, a ministry assistant secretary, told Arab News.

“This is the first time that Bangladesh has started importing rice from Pakistan at the government-to-government level since 1971.”

Following direct maritime contact between the two South Asian countries in November—a Pakistani cargo ship stopped in Bangladesh for the first time since 1971 with imports and exports arranged by private companies—their trade relations grew.

Resuming trade with Pakistan is a significant step for Bangladesh, according to Amena Mohsin, a lecturer at North South University and a specialist in international relations.

“We want to see progress in our bilateral relationship with Pakistan. Most significantly, we are currently going through a low point dispute with India, even though we constantly diversify our partnerships.

This most recent move to purchase rice from Pakistan is really significant in this context,” she told Arab News.

Business

The total amount of Pakistan’s liquid foreign reserves is $15.95 billion.

Published

3 days ago

Farwa

As of February 14, Pakistan’s total liquid foreign reserves were $15,947.9 million, with the State Bank of Pakistan’s (SBP) holdings being $11,201.5 million.

Official figures for the week ending February 14, 2025, show that the central bank’s liquid foreign exchange reserves rose by $35 million to $11,201.5 million.

Commercial banks maintained net foreign reserves of $4,746.4 million during the period under review, according to the breakdown of foreign reserves.

The nation’s total liquid foreign reserves as of the week ending February 07, 2025, were $15,862.6 million.

Of these, the central bank held $11,166.6 million in foreign reserves, while commercial banks kept $4,696 million in net reserves.