The Gulf States have responded with unprecedented speed and daring to the possible impact of the oil crisis on their economies. Led by a new generation of leaders especially in Saudi Arabia they have crafted a sweeping new vision for the country as it seeks to wean itself away from its addiction to oil.
The question we have to ask here in Pakistan is: Have we done anything? Many will say: Why should we? It’s not our problem. If oil prices fall from $120 per barrel to $30, why should we worry? In fact, we benefit from the windfall savings in our oil import bill?
True. But not the whole truth. Consider the following: The mainstay of Pakistan’s economy is the remittances it gets from its overseas workers. A total of about $18 billion were sent home by our workers abroad. Of this some $11 billion was sent by workers in the Gulf countries. Saudi Arabia alone accounted for $5 billion in annual remittances.
Let’s be clear. It is these remittances that are propping up Pakistan’s stumbling economy. Industries have shut down. Value creation is virtually non-existent. Unemployment and poverty are rampant. Yet our imports far exceed our exports.
Last year, according to the State Bank of Pakistan, we imported goods worth $41 billion, and exported goods worth $24 billion. The difference between the two numbers, our trade deficit of $17 billion, is made up entirely by the $18 billion in remittances from overseas workers.
Take away these remittances and our economy would no longer be able to finance our trade balance. A wrenching downward adjustment would need to be made in a very short time. And what is happening in the Gulf today suggests that this day of reckoning may not be far away. The Gulf States are taking a range of measures to deal with the crisis. Non-essential projects are being cancelled. Efforts are being made to replace foreign labour with a local labour force. Taxes are being contemplated.
These would be on remittances by foreigners and possibly on their incomes. The Consultative Assembly of Saudi Arabia known as the Shoura Council is taking up a proposal to tax expatriate remittances. Fees on residence permits and other licenses will rise. Subsidies on utilities are being axed. Fuel prices have already tripled in the Kingdom.
All of these steps will have an impact on Pakistan. The most serious of these will result from job losses as marginal projects are cut. Already, last week, one of the largest construction companies in Saudi Arabia, the Bin Laden Group, culled 50,000 workers the vast majority from Pakistan.
And this is just the beginning. There are an estimated four million Pakistani workers in the Gulf countries. Saudi Arabia alone is host to some two million of them. In just one week, one company has decided to send three per cent of all Pakistani workers in the Kingdom home. As the new reforms take hold more and more of them will start to come home.
If taxes are imposed on their remittances, many Pakistani workers will find it difficult to support their families at home and might well opt to return voluntarily. This applies especially to blue-collar workers who represent the vast majority some 90 per cent of Pakistanis in the Gulf.
The upshot is that Pakistan will start to see a reverse exodus of workers returning from the Gulf. This will impact Pakistan’s economy in two ways. First, remittances will take a hit. And, second, hundreds of thousands of able-bodied returning workers will add to the millions of the already unemployed in Pakistan. This is the classic double whammy that may deal the deathblow to our already floundering economy.
So it is surprising that this issue is not even being discussed in government or political circles. Instead, the corridors of power seem infatuated with the China Pakistan Economic Corridor (CPEC). It is seen as some kind of rejuvenating elixir for our dying economy a ‘game changer’ as it is often called. This is a dangerous illusion. Yes, CPEC is useful. But let’s not forget that it is a single project. And that too a Chinese project whose benefits will flow more to them than to us. A single project, however grand, can never be a substitute for an integrated and focused economic development plan and strategy for the country. And this is precisely what Pakistan lacks today.
The government thrashes about randomly implementing mega projects a rail transit scheme here, a metro bus there, a coal fired power plant elsewhere, and so on. All this without an overarching strategy or plan to pull Pakistan’s people out of their misery and put them on the path of sustained economic development.
We got away with this as long as the money flowed from the Gulf. But that tap is about to be turned off. And this reality, not CPEC, will be the ‘gamechanger’ that will matter.
‘Courtesy Khaleej Times’.
ahmed sabir