Pakistan

Pakistan heading towards a currency collapse

The current account deficit of Pakistan has reached new highs sounding alarm bells everywhere but Islamabad. PKR is under severe pressure as the exports decline and import bills keep on hitting the all-time high.
While economy has never been the high point of Pakistan’s domestic politics, the times have changed drastically for the nation with its entry into OBOR.

Poised to build a Chinese Road for Chinese goods with Chinese Loan of 52 billion USD, OBOR has been sold to the electorate of Pakistan as its panacea for all economic ills and has been marketed as a road to progress. What has not been discussed in public is the fact that Chinese are not actually investing into OBOR, but merely giving loans backed by sovereign guarantees of Pakistan.

Just a look into the import bills of causing the Balance of Payment to go downhill and one can easily see it’s a long start of imports from China that are only going to increase. An even closer look can make it very clear that of that OBOR is not contributing anything to local production capabilities of Pakistan but adding to the orders of factories in south eastern China. The bias of spends in favor of China is so much high that even the manual labor is imported from China.

To their credit there is almost nothing in the world that can be manufactured as cheaply and cost effective as it can be done by the Chinese. With no trade barriers (Pakistan has signed a free trade agreement with China) the One Belt One Road road may actual mean a death bell for all manufacturing in Pakistan as we know it.

While Chinese may see Pakistan’s value in its untapped natural resources, Pakistani mines are nowhere close to that Australia in terms of efficiency or that quality. Similarly Pakistani Agriculture, the only Pakistani export worth mentioning, depends too much favourable rainfall distribution – which has given a miss to the region this year.

The Balance of Payment does not seem to be coming under control anytime soon, unless Pakistan secures a big bailout from its western friends. Even on this account the worsening relations with Washington is not something that can be called favorable for the economists in Islamabad.

The country is looking at a perfect storm of economic failures and a currency collapse seem like a matter of time. It was not a fluke that the Pakistan Army’s powerful COAS expressed his concerns as that of national security, still the politicians and the economists continue to slumber and ignore!

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