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Impact of BrExit on Pakistan Economy

July 1, 2016

Unlike most of the economies, Pakistani government refrained from making official comments on EU referendum or Brexit. Though Pakistan can claim to have historic ties with Britain, but over the years on economic front Pakistan could not make big stride due to lack of visionary economic policies.

Analysis of trade ties between the two-countries is the key to understand its economic impact if any (Risk/Reward).

One of the most pertinent issues that must be bothering business community in Pakistan is the need for immediate clarity that if there is change/revision in UK’s business strategy/policy or will the change occur once article 50 of the treaty of European Union is invoked, as Britain has 2-year time period to negotiate. Though, as per best practice, all commitments that were made before referendum should be honored.

Prior to referendum, EU was the guiding force on trade policies and negotiations, which were conducted by the European Union and this is complicating the issues, which should be quickly addressed.

In Pakistan, out of over 500 multinationals operating, it is estimated that there are more than 100 British companies operating in Pakistan.

Bilateral trade volume with EU is roughly around USD 11 Billion and trade volume against UK is little under USD 2.3 billion or 4th largest export market for Pakistan and is placed 2nd in net inflow in foreign investments.

In Britain there are nearly 1.2 million British Pakistanis. After Brexit, rules of doing business, education policy, visa policy etc may come under scrutiny and will change. Britain is already adopting tough stance on immigration, which could get even tougher.

CHALLANGES

Sudden changes in business environment are possible that could flip the ongoing flow, which should be temporary. Trade tariff and treaties, immigration laws will be amended and regulations will be modified. Hence, it can cause volatility that needs to be looked upon to handle short term and long term consequences.

On paper our macroeconomic fundamentals could be OK, but in reality damages may not be sustainable due to weak external position and fiscal indiscipline. It is because our near term and medium term firewall is feeble, as size the of outflow is next two years is huge.

POSSITIVES

Brexit also means Britain will free itself from European Union’s shackle and will no more be hostage to EU guidelines that will provide space for free and new trade pacts with its friendly countries giving space for enhanced cooperation.

It all may point to have negative impact on businesses, but with sensible and timely approach Brexit could potentially deliver positive result, as EU restrictions will be lifted that will open gates for genuine overseas trades. Historically, Pakistan has good relationship with UK and hence, could be beneficial if timely en-cashed.

Bottom line is that only policies will be amended and not the borders of UK and EU Countries, which means only trading pattern will change. Pakistan does not have significant operations in UK and therefore Brexit does not pose major risk to Pakistan’s economy.

Simultaneously, EU too could be boon to many new business openings to fill the gaps.

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