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Monday, June 27, 2016

Post Brexit Implications For Pakistan

Ten Nobel Laureates in Economics wrote letter to The Guardian regarding Brexit and warned that a vote to leave the European Union could hurt the UK in three ways; firstly it would limit UK's access to European market; secondly it would force the UK to redefine its trade relBritain ationship within and outside Europe and thirdly, separation will be slow leading to years of uncertainty for investors. voted to leave anyway, and global equities lost over $ two trillion in a day. The EU has lost some of its political clouts on global stage, while the isolationist parties in the member states have gained ground. If Scotland seeks referendum on independence UK will also lose a clout. The political vacuum should provide, USA, China, Russia and India opportunities to extend influence. As far as implications for Pakistan are concerned the picture is complicated. Things look neutral for now. However, low exports makes Pakistan a potential refuge in the post-Brexit world. The bad thing is, the exports would decline due to two reasons. First, the UK is the third biggest importer of Pakistani goods after China and USA. Pakistani exports were helped by GSP Plus arrangements with the EU Second, the weakening of pound sterling and Euro will make Pakistani exports more expensive for European consumers. The remittance may also decline. The UK is the third largest source of remittance behind Saudi Arabia. Foreign portfolio investment may also decline. The only foreign portfolio investors in Pakistan are institutional investors who are very particular about their exposure to risk. Virtually all such investors are exposed to the UK or EU markets, as the risk from these portfolios increases, the investors are likely to reduce their exposure to emerging markets such as Pakistan.
Foreign direct investment in Pakistan may rise. The UK has the third largest direct investment inflow into Pakistan after China and UAE. Several multinationals based in these countries are well established in Pakistan.

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