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Drive cautiously down China’s Belt and Road

KarachiPort

By Shahid Yusuf

China’s Belt and Road Initiative (BRI) aims to create a Eurasian economic corridor and a string of economic hubs anchored to Chinese cities,  thereby generating a development dynamic that is advantageous to China’s growth. The investment and trade generated by BRI could enable China to sustain a growth rate of 6 to 7 percent and double its GDP between 2010 and 2021. As of end 2016, $900 billion worth of BRI-related projects were planned or under implementation – with loans and credits from Chinese banks amounting to $1.2 trillion (not all for BRI projects). Chinese agencies claim that the BRI will eventually absorb between $4 trillion and $8 trillion.

But what are the benefits and risks for countries accepting BRI-linked financing to build transport and energy infrastructure?

To this day, the BRI remains a patchwork of projects without a well-articulated strategy backed by solid analysis of the potential benefits for China and countries that will borrow from Chinese entities to finance large infrastructure projects. This is critical if the politically less-than-stable countries in Central and South Asia with a poor track record of sound policymaking are to benefit from BRI. In order to service BRI loans, the investment in transport and energy infrastructures plus any associated technology transfer must attract private investment in tradable goods and services and increase export earnings from exports.[1] Whether such a virtuous spiral of investment and exports will ensue, is far from certain. Moreover, infrastructure building and mining on the scale envisaged could lead to severe environmental degradation absent the enforcement of strict regulations, which are either not in place or enforced with a light touch.

There are other reasons for proceeding cautiously down the Belt and Road. The terms and conditions of loans extended by Chinese entities are less than transparent. Furthermore, the governance and finances of the more than 50 Chinese state-owned enterprises that are responsible for major BRI projects are opaque, and their capacity to manage and implement complex transnational projects is untested. Contractual relations with such entities could prove to be tendentious if projects fail, the quality of work and materials is poor, or if lax environmental standards cause damage. The Tharparkar project in Pakistan is a case in point.

This context elicits the following questions and concerns that deserve closer attention and more systematic study.

Can China finance BRI projects to the tune of several trillion dollars from its own resources? And if not, will China need to tap the international bond market for the bulk of the financing? By doing so, its indebtedness would increase and it would absorb considerable risk associated with lending for long-term projects in countries such as Uzbekistan, Pakistan, Sri Lanka, and Laos. In the end, given the current state of China’s forex reserves, will the outlay on BRI be an affordable but not game changing $25 billion per year?

China’s neighbors worry that the purpose of BRI infrastructure and connectivity is to further Chinese exports and geopolitical ambitions. Many are already on the slippery slope to deindustrialization and BRI could accelerate the process. Existing light consumer manufacturing would be imperiled and the likelihood of diversifying into more complex products would be greatly diminished because of China’s competitive advantage in a wide range of manufactures.

European experience suggests that cross-border transport infrastructure has not led to regional convergence. If anything, it has tended to increase regional disparities by making existing hubs more dominant and disadvantaging nearby regions in the hubs’ shadow. Rail links between Milan and Naples have strengthened hub economies while contributing little to the development of Southern Italy. A study of road infrastructure building in Portugal came to similar negative conclusions: greater accessibility did not improve the cohesion and purchasing power of less developed parts of the country.

To service loans from China and other borrowers, countries on the receiving end of infrastructure investment will need to greatly expand their exports and run trade and current account surpluses. Given recent trends in manufacturing and slower growth of world merchandise trade, is that likely? In 2016, China ran a trade surplus amounting to $250 billion with participants in the BRI. Could countries such as Pakistan (which runs a $13 billion trade deficit with China) possibly narrow and reverse the trade gap and run surpluses with its hyper competitive neighbor?[2] If they do not, what is the return to these countries in the form of long term gains from infrastructure? In other words, how much growth could BRI projects unlock by way of tradable goods and services? Furthermore, if highly indebted countries are unable to repay these loans, what are the consequences for Chinese firms and for their bankers?[3] Taking over assets that will need to be marked down would involve absorbing large losses.

What is the risk of BRI exacerbating the resource curse in countries such as Kazakhstan, Turkmenistan, and Afghanistan? Could the creation of the BRI trade corridor render them even more resource dependent and stunt their non-resource based tradable sectors?

So far, China’s projects in its own Western provinces have at best yielded modest returns. The profitability of China’s foreign direct investment in developing countries has also been low. This suggests that the cross-national infrastructure projects intrinsic to BRI will be costly to build and the financial returns are likely to be meager, at least in the medium term. Political changes in destination countries could easily affect project outcomes. Political risk could discourage participation by investors from developed countries.

Geopolitical issues need to be factored in. China’s actions have alarmed some of its neighbors – India in particular.[4]  Chinese closeness to and support for Pakistan could contribute to continuing friction between Pakistan and India. Political tensions within and among countries, sporadic violence (as in Pakistan’s Baluchistan Province), and arms races in South, Southeast, and East Asia may undermine the BRI – as will continuing discord in the Middle East. How might these developments and others affect growth prospects is a key question.

Shahid Yusuf is Chief Economist of the Growth Dialogue at George Washington University and an adjunct professor at Johns Hopkins University.

Note: The views expressed in this article are the author’s and do not necessarily represent those of Pakistan’s Growth Story.

[1] Premier Li Keqiang referred to technology transfer as China’s, “golden business card”. Financial Times (2017, July 18th p.9).
[2] Between 2006/7 and 2015/16, Pakistan’s exports to China went from $575 billion to $1.63 billion. Meanwhile China’s exports to Pakistan increased from $3.5 billion to $12.1 billion (Source: http://fp.brecorder.com/2017/03/20170314153866/). Figures in the Financial Times indicate that China’s exports amounted to $16.5 billion in 2015.
[3] Down the road, servicing the loans from China will be burdensome for many countries. Chinese firms have already encountered problems with projects in Myanmar, Sri Lanka and Indonesia. Chinese SOEs that are spearheading BRI, such as the China Railway Corporation, are themselves increasingly in debt to Chinese banks – CRC’s debts amount to $558 billion and these are rising largely because much of China’s 22,000 high-speed rail network runs at a loss (Source: https://www.ft.com/content/9a4aab54-624d-11e7-8814-0ac7eb84e5f1?mhq5j=e3, https://www.ft.com/content/156da902-354f-11e7-bce4-9023f8c0fd2e?mhq5j=e3).
[4] In response to BRI and disputes along its northern border with China have induced India to launch its own initiative extending from Africa to Southeast Asia variously called the “Spice Route” the “Blue Revolution” and SAGAR – “Security and Growth for all in the Region”. India is also investing $300 million to lease the 2,000 acre tract of land which is the site of the largely deserted Mattala Rajapaksa Airport adjacent to Hambantota Port in Sri Lanka in order to prevent a Chinese takeover of the facility and to control China’s access to the port that it has leased for 99 years (Source: http://www.businessinsider.com/india-and-china-are-fighting-for-control-in-sri-lanka-2017-12, https://www.reuters.com/article/us-sri-lanka-port-india/india-eyes-airport-in-sri-lanka-near-chinese-belt-and-road-outpost-idUSKBN1CI0KI).

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Clearing the air of toxic smog

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Sharmin Arif and Shehryar Nabi

Last October, Punjab was blanketed by grey soot, which not only hampered visibility, but stung the eyes and created a burning smell that was toxic to inhale. This was unprecedented. Smog in Lahore is usually not so dense and dark, nor does it settle on the city as a layer of grime.

The smog was a mixture of fog and a soup of air pollutants spewing from vehicles’ exhaust, industrial smoke, backup generators, open waste burning, and crop burning. Lahore wasn’t the only city to fall under its haze; thick smog extended across cities in Punjab and Northern India.

The Consortium for Development Policy Research recently brought together three Lahore-based experts, a government official, and one Indian researcher (via Skype) to discuss the consequences of smog and strategies to prevent it.

Here are some key insights gleaned from the event:

Why do we see smog, and how bad is it?

While air pollution is severe year-round, smog is only visible in cooler months because of a meteorological process known as thermal inversion, explained by Sanval Nasim, Assistant Professor of Economics at the Lahore University of Management Sciences. Cold air gets trapped between layers of hot air, constricting air movement and concentrating air pollution.

Ali Habib, Managing Partner at Hima Verte, pointed out that the predominant irritant found in Lahore’s air is a particulate known as PM 2.5. Smaller than one-fortieth the width of a human hair, these tiny particulates can get permanently lodged in human lungs with constant exposure. Lahore’s PM 2.5 levels average at 68 per cubic meter, nearly seven times higher than what the World Health Organization (WHO) considers safe, and 4.5 times higher than Pakistan’s own standard. PM 10 has also been found in large quantities in Lahore’s air and poses a health hazard, though less severe than PM 2.5.

Severe air pollution costs lives and money. According to the Air Quality-Life Index, Pakistan’s life expectancy would increase by 2.5 years if WHO standards were met. According to a World Bank report, air pollution is connected to 10 percent of deaths worldwide and costs South Asia almost one percent of its gross domestic product.

Tackling big polluters

To check the emissions of large polluting industries, the government’s prevailing policy has been command and control: Enforce a limit on how much stationary sources can emit toxic chemicals. Sanval Nasim argued that this policy suffers because it imposes blanket limits on very different kinds of emissions sources. The standards ought to change depending on the source, and the government has been ineffective at differentiating between polluters. Santosh Harish, Associate Director of Research (India) at the University of Chicago’s Energy Policy Institute, added that command and control policies are also expensive and difficult to enforce, making them ultimately counter-productive.

Nasim described two price-based mechanisms that would be more effective. One is setting a per unit tax on emissions, which, in the firm’s perspective, functions as a “price” for polluting. As long as the price of emissions is higher than cost of reducing emissions, it’s in the firm’s best interest to reduce emissions. This could incentivize the adoption of green technology and raise substantial revenue for the government.

The other is tradable permits. After setting a limit on emissions, firms can pollute at that limit by purchasing a permit. These permits can be exchanged between firms in a regulated market. While this system has worked well in the United States and the European Union, a major challenge is the initial allocation of permits to prevent a few companies from gaining a monopoly over selling permits.

While these policies could work for stationary sources of emissions, Nasim proposed two additional policies to keep vehicles in check. The first is imposing a congestion tax – a toll for driving through high-traffic areas at certain times of the day. This could encourage more people to carpool and reduce the number of vehicles on the road, in turn reducing emissions. The second is to require cars to receive regular emissions checks, which could prompt less vehicle use.

Getting farmers to stop burning crop stubble

Talking about India, Santosh Harish commented that reducing crop stubble burning should focus on alternative methods to dispose of the stubble. But this hasn’t been easy. Existing bans on stubble burning have been ineffective. While alternative harvest machines could work, it is unclear whether they are used regularly and enforcing their use is a big challenge. A possible solution is to pay farmers to deposit stubble at a collection point, but it will still need to be disposed without burning.

Lower air pollution could be a byproduct of government reform

To curb air pollution from small-scale sources such as construction dust, stubble burning, and open trash burning, Harish argued that improving municipal governance overall would go farther than intervening on each individual issue. For example, if waste collection authorities increased their capacity to do what they are already supposed to, we would see less open-air trash burning. If the overall quality of road construction improved, less congestion would reduce the number of vehicles on the road and thus road dust. These benefits for air quality would essentially be “built-in” features of broader improvements in government capacity.

Citizens need to own the problem

The panel unanimously underscored the importance of increasing citizen demand for air pollution. Until that happens, polluters will not be held accountable for meeting government emissions standards. Harish noted that the discussion surrounding air pollution is currently too technocratic, leaving most citizens unengaged. Rafay Alam, an environmental lawyer and activist, said that better communication of air quality data can create the political constituency needed to put pressure on politicians for prioritizing air pollution in the 2018 General Election.

Pakistan and India need to work together

Because air pollution is a regional problem, Pakistan’s cities will continue experiencing smog from India even if it takes effective unilateral action. The same is true of India’s cities. That’s why Pakistan and India need to collaborate.

Political tensions make that difficult, of course, especially when it comes to getting both governments to talk to each other. However, Santosh Harish and Rafay Alam proposed a solution outside of government engagement: A cross-border university network to monitor and compile air pollution data.

This is, in fact, something the government desperately needs. Saif Anjum, Secretary Environment Protection Department of the Government of Punjab, commented that the government’s current data on air pollution is scanty. IT cannot distinguish between polluters, nor does it know how much an intervention will be worth its investment. He said that not only does the quality of data need improvement, but the ability to determine its relevance for policy needs to be embedded within the policymaking process. The Punjab government’s capacity to do that is limited.

A university network could present this data to governments and citizens. This will give us a better grasp of where air pollution is concentrated, which goes a long way towards taking the right course of action.

Sharmin Arif is a communications assistant at the Consortium for Development Policy Research.

Shehryar Nabi is a communications associate at the Consortium for Development Policy Research.

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Pakistan’s energy policy ignores lessons of history

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By Usman Naeem

At a recent workshop[1] held in Kathmandu, Nepal on September 28, 2016, Punjab Secretary of Energy Asad Rehman Gilani said that 1,500 megawatts (MW) have been added to the province’s power supply within the past 24 months. This is an astounding 38 percent of the daily average shortfall (between peak demand and supply) of 4,000 MW in Pakistan’s energy sector. This figure excited regional policymakers and energy economists, who sat on the edge of their seats to learn more about the “Punjab speed”.

“Punjab speed” is actually based on “Shenzhen speed”, a term Secretary Gilani picked up during an official visit to China. “Shenzhen speed” refers to China’s rapid execution of large projects. Gilani used “Punjab speed” to describe a coal-based power plant (1,320 MW) and three LNG-based power plants (3,600 MW) in Punjab that are expected to become operational seven months and three months ahead of schedule, respectively.

While all of this sounds very impressive, has it addressed the underlying issues in the energy sector or have we simply chosen not to learn from past mistakes? This question is all the more important as the budget season approaches and energy expenditures loom large in the public debate.

Take the Benazir Bhutto administration’s response to the energy crisis of the 1990s. To draw private investment into the energy sector, investors were offered attractive upfront tariffs[2] that guaranteed returns on equity of 15 to 18 percent and tax exemptions. This led to US $5 billion in investment and about 4,500 MW of private generation in record time.

However, investors had little incentive to spend on projects that maximized generation and minimized cost because they operated under a “cost-plus” model, in which returns were governed by expenditures on initial capital investments and not on how well the plant performed. This payment formula was fixed for the life of the power project. Even worse, the government decided to bear the costs of any increase in fuel prices and/or rupee devaluation to make investments more attractive. Consequently, expensive and poorly designed power plants which required both high government subsidies and higher electricity prices were constructed.

Unfortunately, the government’s current approach to expanding its coal, natural gas, and renewable power generation is also problematic.

For the coal-based power plants, indigenous coal exploitation in the Thar Desert region is still far from reality. At least in the medium-term, both coal as well as equipment for coal-based power plants would have to be imported. This would again expose the government to exchange rate risks (i.e., rupee devaluation) that translate into higher prices for the consumer. And even in the long-term, there is a lack of technical capacity and financing to exploit Thar’s coal reserves and insufficient infrastructure to transport coal across the country. As the world moves away from coal, power plants imported from China may be inefficient with high per unit costs, not to mention the high environmental costs.

LNG-based power plants are simply far too expensive to afford. The costs of LNG generation are double those of coal. Plus, even if we choose to import LNG to meet the current demand-supply shortfall, it will only be a short-term fix.

Renewable energy is costly because of a widely-held belief that private investors made huge fortunes under prior policies of the 1990s, while the people of Pakistan paid the price. Misguided by this belief, the national regulator has focused on limiting how much profit investors can make rather than fixing energy policy to promote low-cost generation. This misplaced priority has favored suboptimal technologies and resulted in expensive generation.

For example, in the draft 2013 upfront wind tariff, the regulator proposed that the government will only purchase energy generated up to 31 percent of the capacity factor[3] at full tariff. Any excess generation will be purchased at a decreasing tariff. This took away any incentive from the power producers to maximize generation (i.e., to invest in better quality wind turbines that will produce more electricity from the same wind speed), and instead led them to invest in less efficient technology that translated into higher per unit price. The experience of the solar sector is similar.

Pakistan’s energy crisis is arguably rooted more in issues of weak governance that have produced a sub-optimal regulatory framework rather than shortage of supply. Over the years, we have succeeded in attracting private investment and setting up power projects, but with a poor understanding of how to respond to changing costs. This has resulted in expensive generation that is a burden on consumers and the government exchequer and has disrupted the energy supply chain.

To avoid past mistakes, we need to fully understand the costs associated with each project and carry out comprehensive contingent liability exercises to assess the potential risks and devise strategies to mitigate the risks.

The energy mix should be determined on the basis of technical and economic analysis given the evolving cost structure of different sources of energy as opposed to the ad-hoc and crisis-driven decision-making that has become the status quo.

Usman Naeem is a Pakistan Country Economist at the International Growth Centre (IGC). The opinions expressed here do not represent the views of the IGC.

[1] The workshop, funded by UK Aid and organized by Oxford Policy Management (OPM) and the Center for Effective Global Action (CEGA) at the University of California, Berkeley, focused on identifying energy challenges facing the South Asia region and developing policy-relevant research questions to overcome them.

[2] Under an upfront tariff regime the energy regulatory body fixes the per-kilowatt-hour price of electricity in advance and the project sponsor agrees to pay that tariff regardless of what the building cost of the project will be.

[3] Plant capacity factor is the ratio of a power plant’s actual output over time to its potential output over the same period of time.

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15 changes in 2016 that shaped Pakistan’s development path

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(Image: Flickr user junaidrao, CC BY-NC-ND 2.0)

Shehryar Nabi

Whether you are a pessimist or an optimist about the future, 2016 was indisputably a pivotal year for the world. Here’s a recap of the changes both in and out of Pakistan in 2016 that will affect its development path:

1. Poverty was re-defined

The poverty rate increased significantly this year after the government updated its own methodology for determining poverty, and found that 30 percent of Pakistanis are poor.

The United Nations Development Programme also released Pakistan’s first-ever multidimensional poverty index, which uses non-wealth indicators such as education and health to measure poverty. Using this method, Pakistan’s poverty rate comes to 39 percent.

The good news is that no matter the measure, the poverty rate has been declining overtime, albeit unevenly across different regions.

As argued here, efforts to re-define poverty indicate a willingness to adapt the measure for better anti-poverty interventions. This means that more poor people living above the official poverty line can be targeted by poverty reduction efforts.

2. The China-Pakistan Economic Corridor became functional

The first Chinese ship docked at Gwadar port to receive goods transported along the China-Pakistan Economic Corridor (CPEC) for sale in global markets, opening CPEC to international trade. The government estimates that the $54 billion Chinese investment in infrastructure and energy will create 800,000 jobs and boost Pakistan’s GDP growth rate from its current 4.7 percent to 7 percent in 2018.

But CPEC enthusiasts shouldn’t express their jubilation at the initial investment alone. The transformative effects of CPEC will only be felt if regions adopt policies to accommodate it, and local entrepreneurs seize the opportunity.

CPEC is also tightening Pakistan and China’s military relationship, raising eyebrows in India.

3. More protections for women were legislated

Two bills giving women greater legal protection from physical and sexual violence were passed in 2016.

In February, the Punjab assembly passed the Protection of Women Against Violence Act, which expands the kinds of actions women can report as violence and establishes a process for reporting abuse, protecting victims and bringing cases to court.

In October, parliament passed anti-honor killing and anti-rape bills. The new laws prevent the victim’s family from forgiving the perpetrator of an “honor killing” (unless the perpetrator is sentenced to a capital punishment) and, for rape cases, set a three-month time limit for determining verdicts, require DNA testing as evidence and impose a minimum prison sentence of 25 years for the offender.

The Protection of Women Against Violence Act was criticized by the Council of Islamic Ideology as being un-Islamic and unconstitutional.

Activists praised the bills as a step in the right direction, but there is concern that the laws do not go far enough and lack proper implementation.

4. The International Monetary Fund ended its stabilization program

The International Monetary Fund (IMF) ended its US $6.7 billion, three year stabilization program that increased Pakistan’s foreign reserves enough for four months of imports, reduced its deficit from 8 to 4.3 percent and maintained a steady outlook for economic growth.

While Pakistan is safe from an external shock to its economy for now, the IMF may come back if necessary reforms to make Pakistan resilient to global economic shifts are delayed for too long.

5. Relations soured with Afghanistan . . .

Continued criticism from Afghan President Ashraf Ghani that Pakistan has not done enough to prevent cross-border terrorism, skirmishes at the Khyber Pass and plans to deport 3 million Afghan refugees could further slowdown Pakistan and Afghanistan’s trade relationship and hurt regional cooperation.

6. . . . and India

The glimmer of hope for India-Pakistan relations established after Indian Prime Minister Narendra Modi’s surprise visit to Lahore quickly faded when terrorists allegedly based in and supported by Pakistan killed seven Indian soldiers and one civilian at Pathankot air force base, 19 soldiers at Uri and seven soldiers at Nagrota in India-administered Kashmir.

Anti-India sentiment was also inflamed in Pakistan after the Indian army cracked down on Kashmiri protesters, killing 89 and causing eye damage to thousands, many of whom became permanently blind.

Bollywood banned Pakistani actors, and Pakistan banned Bollywood films (until recently). India carried out “surgical strikes” against terrorists in Pakistan – although official and civilian narratives of the strikes differ. There were more cross-border firings between Pakistani and Indian soldiers. The Indus Waters Treaty came under threat.

While improved India-Pakistan relations are desirable for expanding trade, cultural exchanges and preventing war, the events of 2016 do not bode well.

7. Pakistan became Asia’s best-performing stock market

The Karachi, Lahore and Islamabad stock exchanges merged into the Pakistan Stock Exchange (PSX), which became Asia’s best-performing stock market with an increased value of 27 percent.

Recently, a Chinese-led consortium acquired a 40 percent stake in the PSX, with the hopes of drawing more Chinese investment into Pakistan’s economy.

8. The Panama Papers changed politics

The anti-corruption agenda spearheaded by the leading opposition party, Pakistan Tehreek-e-Insaf (PTI), was bolstered by the Panama Papers investigation that revealed Nawaz Sharif’s children as among the global rich and powerful who hold large offshore accounts.

While there is currently no evidence that the money was extracted through corrupt means, the issue has become a thorn in the side of the ruling Pakistan Muslim League-Nawaz (PMLN) for the 2018 election. With a PMLN victory, voters can expect a continuation of the energy-expanding, infrastructure-building focus of development policy. But if the Panama issue remains potent, securing a PTI win, Pakistan may change course.

9. Pakistan became committed to global CO2 reduction targets

In November, Pakistan ratified the Paris Agreement, which commits countries to reduced CO2 emissions targets. Pakistan also passed the Climate Change Bill 2016, which proposes measures for mitigating the effects of climate change. However, having different ministries implement the measures will be a separate, though important challenge given the threats climate change poses to flood risk, food security and the overall economy.

10. Power generation costs continued to fall

Lower global oil prices and the expansion of wind, hydel, coal, solar and nuclear power projects have made power generation much cheaper, as seen by a recent 50 percent cost reduction in November. Energy costs will likely fall even further if more power companies are privatized, and CPEC energy investments are made next year. The government is hoping that by the 2018 election, regular blackouts will end. However, if power losses from transmission and distribution and inefficient energy usage are not addressed, blackouts will likely return.

11. Infrastructure, infrastructure, infrastructure

New highways. Upgraded railroads. Metro lines. Pakistan’s push for modern infrastructure intensified in 2016.

There is a view that the government is giving infrastructure too much focus and, as a consequence, neglecting the education and health sectors. Others argue that better infrastructure is a form of economic justice.

12. Polio moved closer to eradication

In 2014, there were 306 new cases of polio in Pakistan, a significant increase from preceding years. In response, the government began carrying out regular vaccination drives. This year, only 22 new cases of polio were reported.

The final push to complete eradication still poses challenges, as health workers administering vaccines are threatened by attacks and outdated systems for managing anti-polio drives could leave some children unvaccinated.

13. A cure for Hepatitis C became more affordable

According to Pakistan’s health ministry, about 8 million Pakistanis have Hepatitis C, and 80,000 die from the disease every year. The most effective treatment for the disease is the drug sofosbuvir, but unless a local pharmaceutical company has the rights to produce a generic version, it costs US $1,000 per pill.

This year, the Pakistani pharmaceutical Ferozsons acquired those rights and began manufacturing the drug to be sold at a slashed price of $56 for 28 doses. While poor sanitation and dirty needle use will likely keep Hepatitis C prevalence high, the availability of a low-cost treatment will undoubtedly save lives.

14. A program to reduce malnourishment began 

With the support of the United Kingdom’s Department for International Development, Pakistan launched a food fortification program to fight malnourishment. 44 percent of Pakistani children under five have stunted growth from malnutrition, slowing their cognitive ability and increasing their susceptibility to disease. The program will add micronutrients to flour and edible oils with the hopes that in five years, they will be consumed by over half of the population.

15. The West saw a historic political shift

Pakistan will likely feel the effects of the major political and economic changes in the West: the election of Donald Trump to the United States presidency, Britain’s exit from the European Union and the rise of political parties that favor less trade, less foreign aid and less immigration.

Pakistan may be caught in an awkward position vis-à-vis relations with China and the US if they engage in a trade war, foreign aid could decline and discouraged Pakistani migrants in the West might cause a drop in remittances.

These possibilities and more will be examined in greater detail for a future post.

Shehryar Nabi works in communications for the Consortium for Development Policy Research (CDPR) and the Institute of Development and Economic Alternatives (IDEAS)