Brexit af­fects us all in many ways: IPR

Pakistan Observer - - ECONOMY WATCH -

SALIM AHMED LAHORE—The In­sti­tute for Pol­icy Re­forms, Mon­day, re­leased a com­pre­hen­sive fact sheet on the ef­fects of UK’s exit from the Euro­pean Union. It an­a­lyzes 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.

Pak­istan has al­ready felt Brexit’s ef­fect. Soon af­ter the vote, PSX lost about 1700 points. It is still about a thou­sand points be­low its pre-Brexit level. It is un­likely that for­eign in­vest­ment will re­turn soon. The Fact Sheet states that Pak­istan’s ex­ports will suf­fer a twofold 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. GoP must lobby with UK for its con­tin­u­a­tion. At over 1.5 bil­lion, UK has a share of over 7 per cent in our to­tal ex­port.

Work­ers’ re­mit­tance could also de­cline, espe- cially if un­em­ploy­ment grows in UK. Re­mit­tance from UK is about 13 per cent of to­tal. FDI from UK will likely de­cline. They have fallen since 2007, in line with the over­all trend of FDIs in Pak­istan. Pak­istan is one of the largest re­cip­i­ent 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 bet­ter than oth­ers with open bor­ders. The Fact Sheet states that re­cent pol­icy world­wide 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. Pak­istan must heed this les­son. Eco­nomic pol­icy in Pak­istan has two ob­jec­tives. It sat­is­fies 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.

Af­ter ini­tial volatil­ity, mar­kets have re­cov­ered some­what. The Pound is 10% be­low its pre-Brexit level and the Lon­don Stock Ex­change In­dex, FTSE, has re­cov­ered. Other ef­fects on UK and world econ­omy have yet to un­fold. In­vest­ment de­ci­sions are on hold in UK, and partly in EU. In fact, for­eign in­vestors may be pulling out of UK. This may lead to loss of thou­sands of jobs. Lower eco­nomic growth in UK and EU could lead to an eco­nomic down­turn. Ex­perts fore­cast a 30% chance that the US will be in re­ces­sion within a year. Ac­cess to cap­i­tal for de­vel­op­ing coun­tries will squeeze as money moves to safe havens. Cen­tral banks have helped greatly in restor­ing or­der, but they are limited by al­ready low in­ter­est rates.

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