Increasingly, the hope of economic recovery in Pakistan is becoming hinged on the government influenced investment by Middle Eastern countries; and authorities are drawing parallels to Egypt where the excitement is coming from $40 billion investment and loan from the United Arab Emirates (UAE) and the International Monetary Fund (IMF), with perhaps more in the offing from Saudi Arabia.
Unfortunately, Pakistan shares all the wrong attributes of Egypt, the world’s largest wheat importer. There are many similarities in terms of economic weaknesses, poor governance, ingress of military into politics, restrictions on freedom of expression and media, victimization of political opponents, repeated failure to hold free and fair elections, compromised judiciary, and a perpetual reliance on the IMF and bilateral creditors to avoid economic default. However, Pakistan cannot copy-paste Egypt’s rescue strategy, and the country needs its own plan inline with its economic and geopolitical realities.
Importantly, Egypt is not a good model to emulate. It has been trapped under the IMF, transitioning from one programme to the other, yet still shies away from undertaking much needed structural reforms. The country may survive and live with support from neighboring countries; but Pakistan does not have that luxury anymore.
Unlike Pakistan, Egypt is very well integrated with its regional economy. It is an Arab country and shares language and cultural values with the broader MENA (Middle East North Africa) region. Political considerations force Saudi Arabia, the UAE,and other Gulf sheikhdoms to support Egypt and its part of GAFTA (The Greater Arab Free Trade Area). Moreover, it shares a long border with Israel and people speculate that the recent deals are linked to Egypt’s crucial role in managing the Gaza refugee crisis, as Egypt may permanently open the Rafah border crossing for Palestinians.
Moreover, Gulf countries have various economic imperatives to invest in Egypt as the country’s historic Mediterranean linkages are very strong. The recent investment plans can leverage upon tourism and sea-cargo routes where Egypt has a strategic advantage.
Despite this, the analyst community perceives the recent $35 billion investment plans by the UAE with a pinch of salt. Out of this, $24 billion is to be paid by Abu Dhabi Development Company for acquiring land of Ras Al-Hekma while the remaining $11 billion consists of UAE deposits, which are already held with Egyptian central bank – the sweetener is that Egypt would pay back that $11 billion in local currency.
The land value of Ras Al-Hekma at $140 per squarer meter is perceived to be low, and broader contours of the deal are unclear. This raises concerns that it is a distressed sale, as Egypt is not only facing external financing gap but also is indebted to UAE and others.
According to Egypt’s central bank, country’s debt servicing (principal and interest payment) amounts to $42.3 billion in 2024, which includes deposits from the UAE and Saudi Arabia. The country has just recently signed an expanded deal of $8 billion with the IMF.
There are some parallels to draw here with Pakistan. The country’s external debt repayment is $29 billion for the next 12 months, and it has $8.7 billion deposits from the UAE, Saudi and Kuwait. Pakistan is likely to strike $6-8 billion deal with the IMF in the next few months. And the powers that be are proclaiming incoming flows of tens of billions of dollars in investments to trickle in from friendly Gulf countries, which shall take the economy out of the perpetuating balance of payment crisis.
Moreover, no G-to-G investment and loans could bring Egypt nor Pakistan out of the economic mess they are in. The perpetual reliance on IMF and politically motivated investment from friendly countries are manifestation of it.
Pakistan no longer offers any strategic geographic advantage for the Saudis and Emiratis. Pakistan does not enjoy good relations with majority of its neighbors while India is leveraging upon its economic strength with Pakistan’s friendly Gulf countries, and the US. Pakistan, due to its poor relations with India, does not fit into the equation.
Moreover, Pakistan’s past G-to-G deals with its friends such as China and the UAE do not bode well for the country. This space has already argued on the shortcomings of PTCL privatization and recent concession of container terminal at KTP and handing over of other berths to Abu Dhabi Port Group. The state has failed to give the right signal to the private investors by not letting the last concessionary (PICT – a private foreign player) first right of refusal. Moreover, the Chinese government influenced investment in power sector under the CPEC is responsible for making the power sector unsustainable.
Pakistan cannot rely on G-to-G investment for its economic revival, as the political considerations cannot be delinked from the economic deals and, invariably, there would be strings attached to these investments. The idea of healthy investment is based on a purely private basis and that cannot happen without instilling genuine structural economic reforms.
The Middle Eastern governments and investors are wise. The deals they are offering to Egypt, the largest Arab country in terms of population, may not be identical in the case of Pakistan. Pakistan should look inwards and work on its own strengths, which is its youth bulge and work on building a stronger middle class. The model to emulate is of Dr Manmohan Singh-led Indian model of reforms of the 1990s and catalyze private investment within and from the world thereafter.
Copyright Business Recorder, 2024