It would be tempting to describe 2020 with the Latin term annus horribilis, a year of disaster. While it was undoubtedly a dreadful year for most across the world, yet for Pakistanis there were some sparks of good cheer despite the pall of pervasive global gloom.
The government’s deft handling of the pandemic minimized the economic fallout for the country, and it also did especially well in alleviating the hardships imposed by the lockdown on the poorest and most vulnerable sections of society. Pakistan also appears to have succeeded in keeping the collateral costs to a minimum – certainly at much lower levels than most comparable countries within the region and beyond.
As the “year from hell” ends, the economy in Pakistan shows signs of a smart V-shape recovery and almost all indicators in positive territory. With the ushering of a new decade, hope springs eternal in the breasts of a hard-pressed but hardy nation of 220 million. Therefore, the crystal ball is dusted off to discern top five opportunities, comprising events in 2021 that may provide cause for optimism. To each prospect of good tiding a probability estimate is assigned – with 10 being almost certain, and zero indicating there being no chance of the scenario playing out during the year.
While remaining hopeful, the possibility of unanticipated shocks can never be discounted. There is no dearth of risks and the top five threats for Pakistan are also identified, and assessed based on knowable factors and to the best judgment. For these also the same probability scale is applied to suggest their likelihood of occurrence.
- PTI and its allies secure senate majority
While the opposition parties want to destabilize the government before the Senate elections, it is increasingly apparent that its efforts to unseat the current government are unlikely to be successful. Pakistan Tehreek Insaf (PTI) and its allies can be expected to win the Senate election by an overwhelming majority, which will not only ensure that the incumbent government would complete its constitutional term, but command the necessary parliamentary muscle to enact much required legislative changes. The prospect of greater stability and renewed focus carrying out structural economic changes will increase investor confidence. This is likely to mean an acceleration of the incipient recovery and greater flows of foreign direct investment (FDI). Long gestation investments will materialize as a consequence.
The government will be better positioned to undertake ambitious combination of policy and administrative reforms to institute a progressive tax regime, further rationalize tariff structure and expedite the process of divesting inefficient state-owned enterprises.
Probability: 9 (Very High)
- An expanded CPEC Partnership
The China-Pakistan Economic Corridor (CPEC) is a pillar of Pakistan’s economic strategy in order to shape a new high growth economic region. Although China has undertaken a number of infrastructure development projects throughout the world its most ambitious projects are the China-Pakistan Economic Corridor (CPEC) and its corresponding One Belt and One Road (OBOR) initiatives taking place in Pakistan and Central Asia. China’s projects have already been very beneficial for Pakistan.
Aside from the business opportunities that are already being created in various parts of Pakistan touched by CPEC, the infrastructure is helping to take care of the need to develop infrastructure between Central Asia and South Asia, without Pakistan being required to lift a finger. As it is completed, Pakistan will be able to access Central Asian markets through Western China. New markets will create new opportunities for Pakistani and foreign investors and strongly drive the economy forward creating millions of jobs.
Pakistan must continue to reinforce strategic ties with China to not only bring in investments and increase the economic interdependence, but also to ensure unrestricted access to Central Asia. If Pakistan can convince the Central Asian republics to use Gwadar Port to access the markets of Middle East, South East Asia, and Africa, then Pakistan will be well on its way to being a regional trading hub.
Probability: 7 (MEDIUM to HIGH)
- Information Communication Technology and IT-Enabled Services Sectors Takes off
Pakistan’s Information Communication Technology and IT-enabled services sector’s is shaping up. Exports in this sector have surged by 42 percent year on year to US $823 million during first three months (July-September) of FY 2020-21. The sector is one of the fastest growing sectors and expected to double in next three years to $7 billion, or to contribute almost 2 percent of GDP.
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The country produces +20,000 IT graduates each year and they have helped launch up over 700 tech start-ups since 2010, the majority of which continue to be in business. Pakistan’s thriving freelance industry is ranked 4th globally in terms of number of freelancers engaged in software development and technology. While this demonstrates success of the IT sector, it also highlights potential availability of a rich and growing talent pool. There is clear headroom for growth of sufficiently large companies to absorb the growing number of skilled knowledge workers and provide them with gainful employment.
There needs to be increased venture capital funding to accelerate growth of technology-based startups that can absorb this talent to become part of the formal economy, and scale to enterprise level in short time scales. The government is finally taking this sector seriously and implementing its Digital Pakistan Policy to accelerate and transform the IT sector. It is expected that the combination of organic growth and the boost from government’s initiatives will help the sector take off with steeper growth trajectory.
Probability: 5 (MEDIUM)
- Vaccine is rolled out and also a universal coronavirus vaccine is also developed
Pakistan has signed up for the United Nation’s COVAX Facility, a global initiative aimed at equitable access to safe and effective COVID-19 vaccines worldwide. The government has approved the procurement of vaccines, and vaccination is expected to start by March 2021. As this is successfully rolled out across the country for the vulnerable members of society the worst fears from the pandemic will be gradually allayed and the country will fully move towards complete normality.
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However, the persistent threat of ever-mutating viruses has been highlighted by new variants of COVID-19 in the UK. A universal coronavirus vaccine needs to be developed to avoid a repetition of what the world has had to undergo in 2020. It is hoped that the World Health Organization assembles a consortium of the willing and gives impetus to research-and-development efforts to create a universal vaccine. The world needs it more than anything else at this point and global collaborative efforts are in evidence already.
Probability: 6 (MEDIUM)
- Tourism finally takes off in Pakistan
Tourism could not only provide large numbers of jobs and valuable foreign exchange it will also shape the soft image of Pakistan, which has spin off benefits in terms of trade linkages and foreign direct investment. Pakistan is endowed with natural beauty, historical sites, religious pilgrimage, offering a rich tapestry for sight-seeing as well as experiences not possible anywhere else in the world.
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With British Airways and Virgin Atlantic starting direct flights to the country, and other airlines expected to follow, Pakistan is increasingly being seen as a destination for adventurous tourists. It is highly affordable and the current government is full committed to building infrastructure and capacity to offer winning experiences. The only threat is continued impact of COVID-19 in the world which may hamper international travel.
Probability: 4 (LOW)
- The PTI government is unseated
The combined opposition under the banner of PDM is trying its utmost to destabilize Prime Minister Imran Khan’s government claiming that the 2018 election was stolen from them and that the PTI led government is illegitimate. The trump card of submitting en masse resignations from the national and provincial assemblies is likely to cause some inconvenience for the ruling party, but falls short of a constitutional crisis and does not provide any justification for preventing senate elections from being held. It provides even less justification to force the government to resign. Talk of a third force intervening appears to be no more than wishful thinking on the part of the opposition.
Although unlikely, such a black swan coming to pass would have severely disruptive implications for the incipient economic recovery. Political instability in an already Covid-19 pummeled society would not only have economic consequences but also adversely impact an already fragile security situation. All bets at that point would have to be off.
Probability: 1 (EXTREMELY LOW)
- The world’s worst food crisis in decades results in severe food inflation
The United Nations (UN) has warned the World faces worst food crisis for at least 50 years ( https://www.theguardian.com/society/2020/jun/09/world-faces-worst-food-crisis-50-years-un-coronavirus ). The pandemic has disrupted global food supply chains. Countries have already been stockpiling wheat and other food staples, and consequently food inflation is exacerbating the misery of the poor already challenged by hardships imposed by the lockdown. Even in advanced economies, the poor are suffering from higher food prices at a time of high unemployment. The Pakistani government has been stocking up on grain supplies and other food commodities. Better planning must also be in place by provincial governments of Punjab and Sindh for wheat procurement in April when the next harvest is ready.
Probability: 10 (EXTREMELY HIGH)
- A slow global economic recovery would have repercussions for Pakistan exports
The International Monetary Fund (IMF) expects “a long and difficult ascent” from the COVID-19-induced recession in its biannual World Economic Outlook (WEO) report
( http://sdg.iisd.org/news/imf-anticipates-difficult-economic-recovery-from-pandemic-unctad-data-reveal-scale-of-downturn/ ). The situation could become worse for the West if there’s inadequate fiscal stimulus.
Not too sure about this explanation for price movements. Undoubtedly the Aarti is exploitative, but it’s only possible to do so because there’s all manner of price control and supply (import) constraints/restrictions that create the conditions for ‘manipulation’ https://t.co/I92kLaZ4Bx
— Javed Hassan (@javedhassan) December 31, 2020
This could be further exacerbated by another global financial crisis in developing economies who will struggle to meet repayment schedules of $7trillion debt due by end of 2021 ( https://www.reuters.com/article/us-global-debt/global-debt-to-hit-record-277-trillion-by-year-end-on-pandemic-spending-splurge-iif-idUKKBN27Y239 ). Zambia is the sixth nation to default in 2020. The Group of 20 (G20) has created a “Common Framework” (including China) to manage debt relief, but US congressional reluctance to approve any new resources for the IMF could undermine G20 efforts.
The darkening prospects over global economy could have adverse repercussions for Pakistan’s exports. Although the country has experienced a much faster recovery in its international orders for its textile products than regional competitors after falling sharply earlier in the year, this could be stymied if household spending in developed countries is curtailed.
Probability: 5 (MEDIUM)
- The COVID-19 virus mutates into a more infectious and deadly form amid a slow vaccine rollout
Amidst the rollout of the vaccine in developed countries, the Covid-19 virus continues to spread and mutate. There is concern that the recently developed vaccines may not be effective against new emerging variants. Despite widespread pandemic fatigue likely extending into 2021, the patchy distribution of vaccines in developing countries and the threat from new variants is likely to mean that international travel restrictions could continue well into 2021
Probability: 7 (HIGH)
- Confrontation between Arab-Israeli combine and Iran
Should Israel’s suspected assassination of Iran’s head of nuclear program result in the Supreme Leader Ayatollah Khamenei following through on his vow to retaliate—against Israel, the United Arab Emirates, or Saudi Arabian oil facilities, it could spark regional confrontations whose possible outcomes are impossible to predict. However, what is almost certain is such an escalatory cycle between Washington’s allies and Tehran would spike global oil prices. An already fragile global and Pakistan economic recovery would be severely jeopardized. That scenario however is far from certain and there is hope sanity will prevail.
Probability: 3 (LOW TO MEDIUM)
Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training. Twitter: @javedhassan