With the outbreak of the war in Ukraine, Western countries have imposed all-rounded sanctions on Russia. This, in turn, has had an impact on the global economic, trade, and financial systems, raising concerns in the market and academic circles about the adjustment of the global financial system. One of the main issues being debated is the status of the U.S. dollar.
Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF) warned that financial sanctions against Russia by the West could gradually weaken the U.S. dollar’s role in the world, leading to further fragmentation of the international monetary system. Analysts such as Goldman Sachs economist Cristina Tessari said the actions of the United States and its allies to freeze Russia’s central bank’s foreign exchange reserves have sparked fears that countries may begin to ditch the dollar due to concerns about the power that the United States could muster thanks to the dominance of the currency.
Kenneth Rogoff, a Harvard University economics professor, said in an interview with Bloomberg that the dominance of the dollar could end within 20 years. The reason is that the U.S. and its allies have launched sanctions due to the Russia-Ukraine war, restricting Russia’s access to the dollar-dominated global financial system. This “weaponization of the dollar” will instead stimulate the acceleration of alternative solutions. Rogoff believes that the U.S. blockade or freezing of the foreign exchange reserves of the Russian central bank is undoubtedly a historic development. The preeminence of financial sanctions on Russia by the U.S.-led Western world could accelerate changes in the international financial system to compete with the U.S. dollar. While this certainly would not happen overnight, what could have taken 50 years may now only take 20 years to realize, said Rogoff.
This narrative appears to be supported by data changes in the dollar’s position in global markets. According to the IMF’s most recent Currency Composition of Official Foreign Exchange Reserves (COFER) data, the American currency’s global dollar-denominated foreign exchange reserves were USD 7,087 billion in the fourth quarter of 2021, with a market share of 59.15% in the third quarter, which had dropped to 58.81%. The dollar’s share of the global reserve currency was as high as 72% around the turn of the century. According to SWIFT’s worldwide payment data, the payment share of the U.S. dollar has declined to 38.85% in 2022.
Is the outlook for the dollar’s prospect as pessimistic as these academics and institutions predict?
ANBOUND’s founder Chan Kung holds the exact opposite view. He believes that if the global situation continues with the current development trend, the U.S. dollar will stand out in the world. If there are no exchange rate swings caused by inflation or emergency, the U.S. dollar will be in a unique position when compared to the world’s major currencies.
This begs the question, why would the future of the U.S. currency be diametrically opposed to what many feels is happening while a significant game-changing geopolitical event, especially the conflict in Ukraine, is ongoing?
The difference lies mainly in the variety of opinions on the impact of the geopolitical event of the war in Ukraine. Professor Rogoff believes that the dollar has been reduced in terms of market scale, and new currency substitutes will emerge, thereby weakening the dollar’s status. However, Chan Kung believes that the alternatives to the U.S. dollar cannot succeed, because the market of these alternatives is weak, while their social economy is turbulent, and some are even still in war zones. For these reasons, the U.S. dollar will remain strong, even becoming the sole stable international currency in circulation. All in all, geopolitical factors play an important role in global currencies, and the dollar will be supported by it.
Chan Kung noted in his article Bracing the Era of Economic Shortage, that during a period of economic uncertainty, the Anglo-American axis countries might be safer havens in the face of geopolitical turbulence. He believes that once the geopolitical war in Europe is resolved, the maritime countries and economy of the American continent would re-emerge. From the perspective of the world’s spatial pattern, conflicts and competitions are most intense in the continental region of the world, that is, the continental region where Europe, Russia, the Middle East, Central Asia, China and India are located. It would be difficult to establish buffer zones between them, hence there are direct collisions with each other. Conflicts and competitions are unavoidable and often have existed since time immemorial. The deep mutual hostility has long been recorded in the chapters of history, and the only thing lacking is often a reason for the actual friction to take place in reality.
In contrast, the geographical location of the Anglo-American axis is in the middle of the ocean. The Atlantic and Pacific routes connect the American continent and a large number of island countries and regions of different sizes, and there are often oceanic divisions between them. Historically and relatively speaking lesser enmities exist between these parts of the world, and they are mutually dependent in trade relations. Therefore, while the continental regions are experiencing violent upheaval, the Anglo-American axis, the maritime states, and the Americas have more prominent opportunities for development and enjoy greater prosperity than before.
The Political Imbroglio And The Solution
It is unfortunate that despite being 75 years old, the country’s political and economic crisis is far from over. The leaders bereft of understanding and sensibility continue to exchange barbs in Assembly as well as through Press Conferences using derogatory language against each other crossing all moral frontiers.
The Political disarray and instability have impacted the Economy to the extent that the Dollar has rocketed upwards while the rupee continues to lose its value and slipped to its bottom due to falling exports and depleting foreign exchange reserves. IMF program on tough conditions and regulations has jolted the whole economic system and turbulent political instability has further worsened the situation to an alarming condition ahead if the incompetence continues to haunt the economic policies
In such circumstances, the political parties should show restraint and take serious steps to resolve this impasse that has overcast the clouds of uncertainty. The people are more concerned regarding the state and the fear of Default than their Political Parties or dirtiest political conspiracies and tactics to stick to corridors of power.
They have almost forgotten their role as reformers and problem solvers instead of just creating such a mess that is deteriorating the situation with each Passing Day. The Main Stream parties such as PPP, PML –N and JUI have joined hands to defend their overtures whether taking place by hook or crook. Their 15-party coalition seems to be at daggers drawn towards PTI as they have forgotten their national role to take the people out of the crisis. PTI is under the radar of the ruling coalition as the narrative built by Imran Khan has dusted their political future.
The tested and tried parties have got the power through conspiracy. However, they claim to have the legitimate right to rule the country by amending NAB laws and depriving overseas Pakistanis of the right to Vote fearing that extending the right to vote and EVM may take these corrupt elements out of Election Winning race.
Since they are well aware that the overseas Pakistanis have strong support for PTI so they want them out of Electoral Process. The Evil designs of this rejected class are crystal clear that they are not sincere with those expats from whose exchange the Pakistan economy gets strong support.
Furthermore, the governance crisis in the biggest province of Pakistan Punjab has further aggravated the situation. Since the resignation of CM Usman Buzdar, Punjab has been run either on an Adhoc basis without any Government or as Trust. The musical chairs between Hamza Shahbaz and Chaudhry Pervez for Punjab’s top slot have already messed up the situation and created a political crisis. Though the Supreme Court decision in favour of PTI Nominee Chaudhry Pervez Ellahi has so far cleared the air for time being.
Luckily, PTI and PML-Q coalition has been successful in installing their Government in Punjab and winning Speaker and Deputy Speaker slots. Though, the PML-N-led coalition has challenged the Speaker Election in the High court which is also ringing alarm bells if the high court terms the Speaker’s Election null and void.
It is beyond understanding that on the one hand PTI demands General Elections to bring Political and Economic Stability of the country but on the other hand, it wants to hold Provincial Governments of KPK and Punjab. Especially, after regaining power in Pakistan’s largest provinces, PTI seems to have backed out from its General Elections Demand.
The existing Constitutional crisis is far from over as both PTI and PDM-led coalition are at loggerheads and making every effort to destabilize the PTI Government in Punjab province, without it, the coalition appears to be limited to Federation as PTI has Government KPK and Punjab Province.
The politics of revenge, opposition, Ego and stubbornness has shaken the very roots of the country. The economic and political crisis seems to have no signs of ending given the polarized and selfish nature of the leaders.
The political imbroglio starting from the no-confidence motion is far from over as it is deepening with each passing day.
The leadership crisis is evident from the prevalent state of affairs when the dollar is rising against the rupee and depleting foreign exchange reserves ring the alarm bells for the country but our political parties being devoid of sensibility continue infighting over the lust for power or the throne.
The Political theatre has opened many fronts that are increasing the risky journey ahead that includes electoral reforms, delimitation, falling rupee and terms of engagement with the IMF program and efforts to get the IMF tranche released. Even the Army chief approached the US to expedite the release of the tranche so the emerging economic crisis could be tackled and falling foreign exchange reserves could be increased.
The fuel price hike has already created inflation costing heavily to common men but the so-called coalition parties in power just show their teeth in mass gatherings that everything is going fine. Their non-serious attitude shows that they will not provide any relief to common people. They are concerned about the power and want to retain it for a long time as they believe that PTI after the en masse resignations saga, are out of the contest and they will not experience any opposition as PTI is not mulling over returning to Parliament terming the multi-party coalition as a mixed pickle.
The PTI terms the coalition as an imported Government since it was formed with external support. If the PTI MNAs return to Assembly, they will have the feeling that on their Government benches, they will find those criminals who were either convicted or sentenced.
Meanwhile, the acceptance of 11 MNAs of PTI by the Speaker National Assembly and their subsequent denotifying notification by the Elections Commission of Pakistan has added fuel to fire in the already polarized and turbulent political situation.
Fearing the adverse decision in the alleged Foreign Funding case by the Election Commission of Pakistan, the PTI passed Resolutions in both Punjab and KPK Assemblies demanding the resignation of the Chief Election Commissioner. Even PTI has decided to register a reference in the Supreme Court of Pakistan against Chief Election Commissioner Sikandar Sultan Raja and their Members.
The establishment being neutral or apolitical must come forward to unite the political forces so that the strategy is devised to revive economic growth and stop the rupee from further losing value. The judiciary is performing very well since it is proactive to help prevent the country from falling prey to turbulent political and constitutional crises.
Political leaders have their priorities than those of national interest which is causing the economy and stock market to crash.
The political debacle emancipating in Punjab Assembly has engulfed the entire country since all coalition parties were pressing hard to make full court to hear the case of Deputy speaker Mr Dost Mohammad Mazari’s ruling regarding PML-Q Party Chief alleged letter calling the MPAs to vote for Hamza Shehbaz instead of the Parliamentary party nominee Chaudhry Pervez Illahi who had a thumping majority in the House with 186 Votes against Hamza bagging 179 votes. But it was rejected by Supreme Court clarifying that the Full bench is not needed to decide the case and decided the case in favour of Chaudhry Pervez Illahi terming the Deputy speaker’s ruling null and void.
Since then the Political weather has become very hot and PML N-led coalition Government has built pressure on ECP to announce foreign funding cases of PTI to continue their political rivalry as they want that the PTI should be banned and Imran Khan should be sentenced for receiving funding from Israel and India. Their reliance on the outcome of PTI’s foreign funding case is aimed at Political rivalry with PTI chief Imran Khan and his Party due to its narrative of corruption.
The decision was reserved for eight years but finally, it is being announced after the ruling coalition exerted too much pressure on the Election Commission of Pakistan. The PTI will eventually challenge the decision. Political analysts are of the view that the Political crisis will further deepen and will further aggravate economic conditions and the Pakistani Rupee Slide against Dollar.
It is the need of the hour to have the charter of Economy and reach the consensus to hold early General Elections so that the Economic and Political situation may be stabilized with a new Government with a simple majority whoever gets it.
The concerns and fears do predict that ECP’s sudden decision to announce the foreign funding case will create the worst political crisis which will risk the economy and provide the opportunity for the country’s foes to conspire against the fragile state of affairs.
Let’s hope that whatever happens, it should not have any adverse effect on the country’s disarrayed political arena because the economic crisis, increasing Power tariffs and skyrocketing inflation have already made the life of common men miserable and the uncertain situation presenting a grim outlook that is dangerous for the country.
It is imperative for all the parties to sign a charter of the Economy so that economic conditions could be improved. It is in the national interest to have an apolitical COE that can put the economy on the right track.
Ahsan Iqbal reviews the Ministry of Planning, Development and Special Initiatives Work on Projects
Federal Minister for Planning Development & Special Initiatives Professor Ahsan Iqbal directed to hold Turn Around Pakistan (TAP) Conference in order to address key challenges of the country and to find their solutions through short-term and mid-term measures. The decision was taken on Wednesday while chairing a first ministerial meeting which was attended by Deputy Chairman, Planning Commission, Secretary, Additional Secretary, Members and all Chiefs of the sections.
“Invite all the stakeholders from across the Pakistan in TAP Conference to find ways to kick off the economy by taking immediate remedial measures,” said newly-appointed minister for Planning Development & Special Initiatives while chairing a high level meeting. “The prime objective of the conference is to engage all the relevant stakeholders from across the country and take their input in order to put the country’s economy on track which unfortunately has been thrown in dire condition, said the minister.
While referring to the stakeholders Conference held in 2013 for preparation of vision 2025, the minister said that no policy can be successful without stakeholders ownership. There is rich talent in academia and private sector which must be harnessed. “There is a dire need to develop the economy on cluster based approach and Planning Commission must play its role as development think tank of the country,” he added.
The minister further said that every section chief should be a knowledge leader in his/her field, while stressing the government officials to take the decisions with confidence as (he) will stand behind them. “Your work is not just to clear PC-1s of the projects but to develop and shape development agenda of the country and to implement it,” said the minister. The minister further said that in 2013 Planning Commission was part of the Finance Division and nobody knew about it but it was granted autonomous status by PMLN government and it developed and implemented 2025 vision very successfully.
During 2013-18 more than Rs 700 billion were saved through rationalisation and scrutiny of development schemes by Planning Commission. Same spirit and professionalism should be revived. Prime Minister wants to see Pakistan Speed in every sector, he added. During the meeting, officials of various section shared their opinion which was appreciated by the minister and reiterated that it will be taken in TAP Conference to be held soon.
Pakistan’s trading partners
There have been questions raised on the extent to which foreign policy of Pakistan should reflect its trading relationships with individual countries, regions, and groups of countries which are members of international organizations? This requires determination of which are the major destinations of the country’s exports, and which are the major origins of our imports? What is the regional and country-wise pattern of our trade surpluses and deficits? And which are the major countries to which our exports have shown faster growth?
The analysis has been undertaken with trade data made available by the SBP in its economic data website. For earlier years, the relevant information has been obtained from the SBP publication, Handbook of Statistics on Pakistan Economy.
The top four export markets of Pakistan in 2020-21 are the EU countries combined, the USA, UK, and China. It is significant that the major destinations of Pakistan’s exports are mostly in Europe and North America. Pakistan has been granted GSP plus status by the European Union with some preferential tariff treatment. Pakistan also has a free trade agreement with China which has been implemented in steps from 2006 onwards.
The combined exports to the 27 EU countries aggregated to $6.4 billion in 2020-21. This represents a share of 25 percent of Pakistan’s total exports. The second largest value of exports is to the USA of $5.0 billion, equivalent to 20 percent of total exports of Pakistan.
The other two relatively large destinations of the country’s exports are the UK and China. Combined, the share of Pakistan’s four major export markets is over 62 percent of total global exports. This highlights the extreme regional concentration of the country’s exports. The share of SAARC countries is only 8 percent, despite presence of the SAFTA free trade agreement. It was somewhat higher when there was trade directly with India.
Turning to the regional distribution of the country’s imports, the sources are more diversified. China is by far the dominant exporter to Pakistan. Imports from China aggregated to $13.2 billion in 2020-21, equivalent to over 25 percent of total imports. The other major exporting countries to Pakistan include the OPEC countries with a share of 24 percent, followed by the EU countries and the USA. Overall, the combined share of these countries is close to 55 percent in total imports of Pakistan.
What has been the growth rate of exports to the major destinations? Between 2012-13 and 2018-19, the fastest cumulative increase over the six years is to the UK of 33 percent, followed by a 32 percent increase to Germany and of 11 percent to the USA. The big declines are to China of 27 percent, to Afghanistan of 37 percent and to the UAE of as much as 57 percent.
By far the largest increase in imports has been from China, which has taken full advantage of the free trade agreement with Pakistan. Between 2012-13 and 2018-19, the cumulative increase has been as much as 133 percent. Now China alone accounts for 30 percent of total imports of Pakistan.
The overall trade deficit of Pakistan was very large in 2020-21 at $26.5 billion, with imports over twice the level of exports. Therefore, the likelihood is high that Pakistan will carry a significant deficit with most of its major trading partners. The country-wise balance of trade is given in the table below.
======================================================================== Table 1 ======================================================================== Pakistan's Trade Balance with Major Trading Partners, 2020-21 ($ billion) ======================================================================== Exports to Imports from Balance of Trade ======================================================================== China 2.0 13.2 -11.2 USA 5.0 2.4 3.6 EU Countries 6.5 3.7 2.8 Major OPEC Countries 1.9 9.4 -7.5 Others 10.2 28.7 -18.5 ======================================================================== Total 25.6 52.1 -26.5 ========================================================================
Pakistan has a very large trade deficit with China, equivalent to 42 percent of its global deficit. The deficit has been growing rapidly. Pakistan’s exports to China have been declining while imports have shown fast growth. Today, China’s exports to Pakistan are six times its imports from Pakistan. The time has come for a review of the implementation of the 2006 Trade Agreement between Pakistan and China. Pakistan needs to seek more quid pro quo from China.
The trade surplus with two major trading partners – the USA and the EU countries – is of $3.6 billion and $2.8 billion, respectively. These are the bigger markets, especially for textile products. The trading relationship with these countries needs to be preserved and built upon.
Pakistan has preferential access to the EU market through the GSP plus programme since 2014. This allows a large share of Pakistan’s exports to enter EU countries free of duty. Two criteria must be met for continuation of this facility. First, GSP-covered imports should be less than 2 percent of EU’s imports from all GSP beneficiaries. The share currently of Pakistan is 1.6 percent. Second, the seven largest GSP covered products must account for at least 75 percent of Pakistan’s total GSP covered exports to the EU. The share currently of these products is 94 percent.
Further, Pakistan has had to ratify 27 core international conventions and subscribe to binding commitments to implement them effectively. These are mainly UN and ILO conventions and other conventions on environment. The GSP status of Pakistan is periodically reviewed by the EU. Weak areas of implementation by Pakistan relate to gender inequality, workers’ rights, and the presence of child workers.
There has been some focus recently on Pakistan’s trading relationship with Russia. The current volume of trade between the two countries is small with $163 million of exports and $593 million of imports. The imports are largely of wheat. Now with the international trade sanctions on Russia following the invasion of Ukraine, new sources of wheat will have to be found when the quantity required could rise to almost 5 million tons given the failure of the current wheat crop.
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