The Institute for Policy Reforms on Monday released a comprehensive fact sheet on the effects of UK's exit from the European Union. It analysed its effects on the world economy and on Pakistan. The fact sheet states that Brexit vote also challenges the way economic policy has been run in recent decades.
The fact sheet stated that Pakistan's exports will suffer a two fold blow. Consumer demand in Britain will dampen from lower growth. A cheaper pound will increase the value of foreign goods in UK. Pakistan's main concern is whether exports to UK will lose the duty concessions under EU's GSP plus, and if so, when. UK was a strong advocate for Pakistan's GSP Plus case in Brussels. Government of Pakistan should start lobbying with UK for its continuation. UK has a share of over seven percent in our total export.
Pakistan government is of the view that Brexit will not affect Pakistan anytime soon. There are several possible direct and indirect effects of Brexit on Pakistan.
According to the fact sheet consumer demand in UK will dampen with loss in economic growth. Because of decline in exchange rate, the pound value of our export, as for all other countries, will increase and further affect demand. That will bring down exports.
If UK's exit from EU triggers the forecasted economic downturn, world trade will take a hit. Pakistan's export to other countries will also decline. The probability of this last fear is modest.
In recent years Foreign Direct Investment from Britain fell in line with the overall trend for FDIs to Pakistan. UK FDI was US 460 million dollars in 2007-08. It fell to $157 million in 2014-15 and will likely fall further in 2015-161. UK capital investment overall would likely be on hold so FDI to Pakistan is not expected to pick up soon. Currently, UK's annual FDI to Pakistan is seven percent of total.
Workers' remittance could also decline, especially if unemployment grows in UK. Remittance from UK is about 13 percent of total. They have fallen since 2007, in line with the overall trend of FDIs in Pakistan.
Pakistan is one of the largest recipients of UK's overseas development assistance. Prolonged loss in economic growth could lead UK to reconsider its ODA level. This would affect assistance to Pakistan.
Above are the effects from loss of growth in the UK economy. A spill over to other economies will heighten the effect on Pakistan, as it would for the rest of the world.
An analysis of why UK voters opted out of EU holds a deeper lesson for everyone. Educated and skilled people voted to stay. Unskilled voted leave. The campaign broad brushed serious issues of immigration, globalisation, and technology into nationalistic sound bites. There was no debate on the real issue of why some people cope better than others with open borders.
The fact sheet stated that recent policy world-wide has reduced investment in people. Economic exclusion has as much to do with policies at home as with openness. However, a consensus on market fundamentalism in recent decades has put this issue beyond debate. Warnings about EU exit didn't affect the leave voters as their options had been closed off a long time ago. An uninformed debate placed the blame solely on the single market rather than on domestic policies.
The fact sheet suggested that Pakistan must heed this lesson. Economic policy in Pakistan has two objectives. It satisfied guidance from multilateral institutions or serves elite interest. The majority of people feel left out as they do not figure in government plans. Left out of economic mainstream, they have little stake in the present order. This is a recipe for instability.
Brexit's economic effects partly depend on the method for separation to be adopted by UK and EU. Both parties must try to quickly restore certainty in the markets.
Under EU law, Britain will have little say on the terms of its departure. A majority vote of EU members will decide. An outline agreement that sets the contours of future EU-UK relations and the extent of their cooperation, would help restore market confidence. The fact sheet hopes that EU will retain close trade links with UK.
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