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20 April 2024

Pakistan in a temporary phase of uncertainty

By Yazad Darasha

Pakistan’s economy has made significant progress over the past five years, setting the stage for an acceleration in annual growth to as much as seven to eight per cent for the next five years. The growth is predicated on wide-ranging structural reforms, prudent macroeconomic policies, financial discipline and a consistency and continuity in policies that are expected to continue in spite of a political situation that remains in flux. The transformation of Pakistan into a stable and resurgent economy is expected to continue, even if the stock market, as stock markets are wont to do, nosedives in the next month or so on news of Benazir Bhutto’s assassination, for which Al Qaeda has been blamed.

Can it stop the broad-based economic recovery that has already gathered momentum in Pakistan? Unlikely. Macroeconomic stability has been achieved and the external balance of payments is much stronger today than ever before. Pakistan is witnessing extraordinary buoyancy. A higher-than-targeted growth of more than six per cent in real GDP is being supported by an 18 per cent growth in large-scale manufacturing, a robust performance in services, and a strong rebound in investment, particularly in private sector investment.

Exports are up, new markets are opening for Pakistani goods, and the country is signing trade agreements with several new partners. With the UAE itself, business ties have been increasing geometrically. The UAE’s investments in Pakistan will witness a major boost when this year’s official figures are released, covering key sectors like energy, investment, trade, and manpower. The UAE has already invested billion of dollars in housing, telecommunications, hospitality and and banking in Pakistan.

The UAE is Pakistan’s second largest global trading partner and it is also the second largest source of home remittances from Pakistani expatriates. Pakistan’s trade with UAE has doubled during the past five years. These ties will be augmented by all the reasons that are driving Pakistan’s economy into the 21st century. The country has extensive agricultural land and crop production, mineral reserves, and fisheries and livestock production. An increasing middle class is moving towards sophisticated consumption habits.

Pakistan is working hard on creating new infrastructure and legal systems. It has a modern companies law and a long-standing corporate culture. The UAE’s Emaar Properties has announced several investments to develop residential and commercial realty projects; Dubai World’s subsidiaries have locked in port and property projects; Dubai Islamic Bank plans to open as many as 70 branches in the country. Etisalat has taken management control of the Pakistan Telecommunication Company Limited. In fact, the UAE has become the largest investor in Pakistan, surpassing even the US.

The largest source of foreign direct investment in Pakistan for 2006 was the UAE with investments worth $1.42 billion (Dh5.21bn), which is bound to increase in the future, along with the others in the region. For instance, trade with UAE is expected to cross $5bn (Dh18.35bn) this year.

Similarly, Kuwait and Qatar have also invested in energy and infrastructure development and have indicated plans for further investments in the country.

An estimated three million Pakistanis currently work in Gulf states, providing these countries with a source of labour and giving the workers a source of income that is sent back to their families in remittances.

Arab and Iranian business investment in Pakistan, as well as joint projects, such as the proposed Iran-Pakistan-India gas pipeline, all represent opportunities for building co-operative linkages that might help smooth over the sometimes tense relations between key countries in the region.

It is therefore in the Middle East’s interest to play an active role in stabilising Pakistan. America has spent billions on a bet that Pakistan’s government would crush the Taliban and Al Qaeda while putting the country back on the path to democracy. It has done neither. For its part, Pakistan sees America as an unreliable ally that will abandon it at the first moment of convenience. A recent US administration estimate that about $5bn in anti-terrorism aid has not reached its intended recipients in Pakistan has added fuel to the fire.

The path taken to Pakistan’s heart by the UAE and other countries from the region seems to be the correct one. By making substantial investments in creating and upgrading lifestyles for the populace, these countries and their companies are refusing to act like Big Brother, but, at the same time, making the people of Pakistan seek out a peaceful existence that is not dependent on political manoeuvrings. The relationship between the Gulf states and Pakistan is multi-dimensional. Geographical proximity is only one of the factors that have intensified the relationship. These ties have been shaped by long-standing historical, religious, cultural factors and are based on shared political and security interests, as well as a growing economic relationship.