PAKISTAN’S current forex crisis is rooted both in structural weaknesses and its peculiar position in geopolitics. While an analysis of the primary sources of forex inflows may reveal other contributing factors, these two will nevertheless come out as constants.

Export volumes remain nominal despite percentage growth because of structural problems such as a disrupted energy supply to export industries, dearth of highly skilled, well-disciplined workforce, near absence of brand development, diversification and innovation in production methods, stray subsidies and poor business models.

Most export industries find it easier to continue trade with those countries with which Pakistan’s relations are good and temporary challenges in bilateral ties are somehow managed.

True change will only come about when structural weaknesses that are responsible for impeding sustainable growth, remittances and FDI are addressed

Despite ups and downs in Pakistan’s ties with the US, the long-term strategic nature of these relations has remained conducive to promoting exports in their markets. As a result, 16 per cent of our total export earnings still come from the US. Combined export earnings from European account for 11pc of the total.

But will the leverage Pakistan seems to enjoy with these countries be indefinite?

Post 9-11 developments led to a greater concentration of the Pakistani workforce in the Gulf Cooperation Council (GCC) resulting in a boost in remittances from the region. In FY18 around 58pc of total remittances came from GCC countries while inflows from the US and UK combined constituted 28pc of remittances, highlighting the effect of geopolitical realities.

In US and UK, we have second and third generations of immigrant Pakistanis, a large number of them professionals and entrepreneurs able to earn and send enough money back home. In six GCC countries—Saudi Arabia, UAE, Kuwait, Oman, Qatar and Bahrain—we have a greater concentration of semi-skilled and unskilled workers.

It is generally believed that Pakistanis living in GCC countries tend to remit more money as compared to their US and UK counterparts, as they are not settled there. Pakistan’s relationship with GCC states has traditionally remained smooth enough to continue to create space for its workers there.

But will this relationship remain unaltered? Two GCC giants Saudi Arabia and UAE have already started accommodating a greater Indian workforce as part of their strategy to deepen relations with New Delhi ahead of India’s expected rise as the fifth largest economy. The total number of Pakistanis registered for employment in Saudi Arabia slumped to 143,363 in 2017 from 522,750 in 2015; and to 275,436 from 326,986 in the UAE, according to data obtained from the Bureau of Emigration & Overseas Employment.

In foreign investment, too, the situation is bleak. Out of $2.768 billion foreign direct investment received in FY18, $1.586bn or 57pc plus came from China. Cumulative FDI from 10 other countries stood at $847 million or just over 30pc.

Going forward, China would understandably dominate FDI inflows as CPEC gains momentum. But should we not make an effort to get foreign investment from as many countries as possible to keep our dependence on CPEC-related funding within levels that can be managed without having to making uncomfortable compromises?

Pakistan’s inability to convince foreign investors about the viability of its markets drives homes the deep structural weaknesses present. Yet, at a deeper level, the country’s ‘geopolitical compulsions’ also make it difficult to attract—or continue to attract—sizable foreign investment from a larger number of nations.

And while the new government struggles to address imminent issues in the external sector, these are but of an overarching nature. True change will only come about when structural weaknesses that are responsible for impeding sustainable growth, remittances and FDI, are addressed. —MA

Published in Dawn, The Business and Finance Weekly, September 17th, 2018