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August 22, 2019

Slowing growth

Editorial

 
August 22, 2019

After a fairly miserable year, could Pakistan’s economy be in more trouble going into the next year? In a time when the global economy is showing an undercurrent of recession, Pakistan could continue to suffer from the downward trends in the global economy. Economic analysts say that exports and remittances could continue to fall as the year moves on. With China and the US moving towards economic lockdown, Pakistan’s economy is likely to suffer the ill-effects. Foreign direct investment could suffer as well. Not only has Pakistan’s own economic instability created an environment where few would like to put money into the economy, there will be less money available to be circled back into our economy from abroad. This means that the two most important sources of foreign currency, exports and remittances, are set to face another downturn. This is despite the enthusiasm the government has claimed has been shown by Pakistani expatriates. In this context, the best Pakistan can hope for is for tensions between the US and China to scale back to open the way for renewed global growth. It is thought that the global economy is in its deepest slowdown since 2015.

The only boon from this environment could be a decrease in global oil prices. Since April, global oil prices have fallen by 22 percent – despite the limited impact it has had on Pakistan’s domestic petrol prices. The global price of non-oil commodities has also remained flat or fallen since last year. This means that this is a good environment to boost domestic production, but there are limited avenues available abroad to increase exports. The benefit of lower oil prices could bring Pakistan’s import bill down, but the benefits can only be reaped if exports are protected and remittances remain similar.

The problem with oil prices is that it is a double-edged sword. Lower oil prices in OPEC countries reduce real economic activity in the Middle East, which brings down demand for Pakistani migrant labour. This comes full circle and reduces the remittances received inside Pakistan. With exports falling one percent last year, the situation could be worse a year later. While the government has done well to bring the current account deficit down by 32 percent in one year, further improvement will be difficult with reduced global demand. Pakistan’s growth rate has fallen from 5.5 percent to just over three percent in a single year. This could be worse a year on, with growth closer to two percent. The global economy is set to deepen Pakistan’s economic troubles. Are we prepared?

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