Daily Times

The economy is offering a useful lesson to the Pakistan Tehreek-e-Insaf (PTI) government. When it comes to investors, optics alone cannot always save the day. The Pakistan Stock Exchange has dipped for two consecutive days this week, despite the fanfare surrounding Saudi Crown Prince Muhammad bin Salman’s two-day visit to the country.

It is unlikely that the investors have not been excited by the billions-of-dollars-worth of memorandums of understanding (MoUs) signed between Pakistan and the Gulf monarchy. Recent data by State Bank shows that the foreign direct investment during July-Jan FY19 declined by over 17 per cent compared to same period last year. Even though the State Bank Governor in a recent statement has given a positive view of the economy, there is continued nervousness within the business sector of the country.

The investors are capable of telling the difference between dollars expected to flow into the economy in a distant future and dollars already invested in the economy. The investors, who were already treading cautiously given the impending review at the Financial Action Task Force, have become extra cautious in view of the war hysteria prevailing on the Indian side following the Pulwama attack. India’s cancellation of Pakistan’s status as the most favoured nation, an economic benchmark that sends a positive signal to investors and traders.

Only on Tuesday, the Indian authorities arbitrarily stopped 200 trucks loaded with cement to be imported into the country from Pakistan at the Wagah border. Though this will cause unrest in the cement sector for a while, the larger picture suggests that the blockade won’t make a huge impact at the national level in Pakistan, given exports to India constitute only about two percent of our total cement production. Regardless, there is really no need for the Indian side to take such populist decisions, especially when the repercussions would be damaging for ordinary citizens on both sides.

India enjoys a USD 1.36 billion trade surplus with Pakistan, meaning it exports a lot more to us than it imports from us. Though Pakistan must not go down such a route, but it’s still useful to point out that India stands to lose more, than it may gain, in economic terms, if Pakistan reciprocates with import duties on goods crossing Wagah from India to Pakistan.

Both Pakistan and India must realise that war mongering will lead to mutually assured destruction, whether in economic terms or in military terms. Instead, both sides must bring the hawks under control and let the rational voices guide them out of this crisis.

For the PTI government, the need of the hour is to shun optics. Capital inflows expected in a distant future are good news, but they are no replacement for prudent stewardship of the existing economic resources. Now that the royal guest has departed, the authorities in Islamabad should perhaps turn their attention to economic management in the here and now. *

Published in Daily Times, February 20^th 2019.