Pakistan’s economy is at the crossroads in the wake of a dramatic drop scene for the 20-year US-led war in Afghanistan with the return of Taliban back to power.

Any durable peace and rapid economic development in Afghanistan will create a positive outlook for the region where Pakistan, China, Russia and Iran may take the lead in reconstructing the war-torn economy as well as the infrastructure.

“Long-lasting peace and economic development in Afghanistan will prove positive for Pakistan and its economic activities,” remarked economist Shahid Hasan Siddiqui while talking to The Express Tribune.

“The US and India, however, may still want to see instability in Afghanistan so that economies in the region such as Pakistan, China, Russia and Iran could continue to feel the heat from the chaos,” he said. “Now, much depends on the Taliban leadership in Kabul as to how they deal with the situation.”

A peaceful Afghanistan and development of friendly diplomatic ties will encourage Pakistan and its major ally China to facilitate the landlocked nation in international trade through Gwadar Port and provide enhanced access under the China-Pakistan Economic Corridor (CPEC) and the Belt and Road Initiative (BRI).

Provision of services through Gwadar Port will open a new revenue stream for Pakistan and China as well.

Pakistan has continued to supply imported fertiliser to Afghanistan through Gwadar Port, despite the recent change in the political setup there.

A US study suggests that Afghanistan is sitting on mineral deposits worth $1 trillion. On the other hand, China is a big buyer of minerals, which means they can engage in exploring and trading such resources.

Besides, Pakistan can expand economic ties with Afghanistan by providing more goods under the decades-old transit trade agreement through the two ports in Karachi. This way it will be able to step up exports of a number of goods and play a role in the reconstruction work.

Afghanistan will need almost everything for development and much will depend on Pakistan as to how it markets its products and services in the neighbouring country.

However, any further volatility in Afghanistan will push hundreds of thousands of people to take refugee in Pakistan. “If it happens, it will badly hit Pakistan’s economy,” Siddiqui said.

Reports suggest that around 700,000 Afghans may take shelter in Pakistan in case Kabul fails to overcome the political crisis.

This potential influx of Afghan people will be in addition to an estimated 1.4 million Afghan refugees already living in Pakistan since the Soviet war of the 1980s.

Pakistan will require massive additional resources to take care of the new refugees, including food, medicines and shelter.

Besides, the continued political crisis and law and order situation in Afghanistan would create trouble for Pakistan and hamper its economic growth, as happened in the past, the economist said.

Pakistan’s economy is already encountering challenges as it is implementing an action plan to get out of Financial Action Task Force’s (FATF) grey list and is struggling to resume the International Monetary Fund’s (IMF) $6 billion loan programme.

Pakistani rupee may also come under pressure in case the Taliban government does not get access to Afghanistan’s foreign exchange reserves, which are mostly parked in US banks and/or invested there.

This situation may encourage smugglers to supply US dollars illegally to traders in Afghanistan from Pakistan, where the current account deficit already stands high due to excessive foreign expenditures compared to its income.

The US has initially denied access to Afghanistan’s foreign exchange reserves, which are estimated at $10 billion and enough to cover 15 months of imports.

If the Taliban establish a multi-ethnic government, fulfil the promises made to world powers, continue to provide safe exit for foreigners, allow Afghan girls to get education and ensure the protection of human rights, then “the US must provide them access to the foreign exchange reserves as the world will view the Taliban as a movement that has now adopted international best practices,” Siddiqui said.

The writer is a staff correspondent



Published in The Express Tribune, August 23rd, 2021.

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