November 1, 2022
ISLAMABAD – The Global Economy is transitioning to a new multipolar world order, the most significant shift in the global balance of power since the second world war. The Russia–Ukraine war has accelerated this transition that was already underway with the BRIC (Brazil, Russia, India, China) countries rising contribution to global production and trade, outstripping the growth in the US and EU economies in the last decade.
This metamorphosis offers opportunities for emerging markets, including Pakistan, to open trade and investment ties with neighbours and other regional economies. However, significant threats have emerged that limit our ability to make independent foreign, economic and energy security policies.
The most prominent threat is the balance of payment crisis, with Pakistan facing the risk of sovereign default on external debt repayments. The International Monetary Fund’s bailout has helped stabilise the economy and avert the immediate risk of default. Nevertheless, it seemingly comes at a cost, with Pakistan being unable to secure oil from Russia at concessional prices, which India, China and Bangladesh have successfully done to shield their population from the price hike spiral.
The economic opportunities of the new multipolar world order are enormous for Pakistan. The challenge, however, is how we pursue these opportunities diplomatically and strategically in line with our national interests, particularly given our dependence on international multilateral financial institutions, predominantly under the influence of the West.
The new emerging world order is driven by the need for energy and food security, with countries like China and India working to secure supplies even at the cost of antagonising superpowers
This will require forging stronger economic ties with emerging economies that offer Pakistan complementarity in terms of trade and market opportunities for our goods and services while enhancing our cooperation and relationship with existing superpowers. This is absolutely essential in light of our precarious external account situation.
The new emerging world order is again driven by the need for energy and food security, with more countries like China and India working to secure their energy supplies even at the cost of antagonising the western superpowers.
The payment infrastructure and the routes that Europe and India are using to work with Russia will become a reality and more acceptable with time at the back of desperate energy necessities. Overall, the polarisation of the world is being settled on economic and energy grounds stronger than ever before.
We, in Pakistan, can’t remain aloof from this new emerging global world order. We must reevaluate our external affairs and consider repositioning ourselves politically, which will directly impact our economic policies going forward. Given how quickly the global winds of change are blowing, we will need to act swiftly on the foreign policy front or risk falling behind and thereby jeopardising our shared vision of a prosperous, independent and secure Pakistan.
Indeed, foreign policy decisions are intertwined with economic policies, requiring strong coordination and collaboration between the Ministry of Finance and the Foreign Office to advance our common goals. The ruling establishment will need to accept this reality and deploy all hands on deck to get our balance of payments in order and place Pakistan on a new path of inclusive and sustainable growth.
Let’s look at what this evolving environment poses as an opportunity for Pakistan. The biggest one is to get support on meeting our energy and food security needs on the infrastructure front and inventory flow while fetching better trading terms for gas and wheat.
There may be a possibility to fix and develop energy infrastructure with Russia if acceptance of their role in trade becomes more appreciable in Europe and the rest of the world. The Russia-Ukraine crisis has exposed new vulnerabilities on the climate change front, with western economies showing the limits of their support to green and climate-smart solutions.
Many emerging and advanced economies will look to have a more diversified energy mix moving forward that includes gas, nuclear, and renewable energy. Funding, particularly for large energy projects, will be accessible through both bilateral and multilateral partners. Nuclear energy, in particular, offers great promise as an alternate, low-carbon fuel for power generation that Pakistan should explore.
The opportunity to get our white elephants, like Pakistan Steel Mills, fixed along with other state-owned enterprises through collaboration with Russia and China cannot be underestimated. There will surely be more interest in our privatisation assets from this new cash-rich region surfacing.
No country can progress without a working relationship with its neighbours. Unfortunately, Pakistan has been a victim of having estranged relationships with its bordering countries, but the shifting regional geo-political dynamics have important implications.
Russia already has strong ties with India. This may benefit us in one way or the other if Russia can use its influence to reduce India-Pakistan tensions in the interests of regional stability. China and India compete for regional supremacy and influence but maintain a working relationship for their mutual economic interests. China can, therefore, also play an important role in diffusing tensions between New Delhi and Islamabad.
Another interesting element is the trade relationship between Afghanistan and Russia. With the West not willing to extend an olive branch to Afghanistan, there’s an opportunity for Russia and China to become bigger regional actors. A stable Afghanistan would benefit Pakistan greatly.
If the US potentially waters down sanctions and opens trade with Iran in pursuit of a nuclear deal, it will positively impact countries like Pakistan.
In light of these changing global realities, Pakistan must reposition itself with a long-term view of where we want the country to go. We must leverage our geo-strategic location and rich endowment of natural resources and human capital to embark on a new path of sustained economic growth, using the full extent of foreign policy and economic tools at our disposal.
Proactive diplomatic efforts will be required to attract foreign investment and promote our goods and services in big and small markets. At the same time, our economic policymakers will need to prioritise export-led growth and a healthy external account balance that reduces our dependency on foreign debt. The time to act is now — and all stakeholders must come on board.
Jalil Abbas Jilani is a former foreign secretary and Zafar Masud is the president and CEO of the Bank of Punjab