Home Articles Political and Economic Scenario of World and Pakistan in 2020

Political and Economic Scenario of World and Pakistan in 2020

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Governments and institutions will be tested by considerable challenges over the next decade as the international order is restructured and global trends converge.

All forms of government in every region will face increasing tensions both domestic and foreign. In the short-term, these global trends will increase the threat posed by all types of terrorism, and the ability for asymmetrically-powerful state and non-state actors to adversely affect the International order and the global balance of power.

Tensions would rise because citizens around the world are raising questions about the relationship that exists between governments and themselves. Growing populism in the West threatens an international order governed by rule-of-law. Tensions between governing elites and their citizens are reshaping global geopolitics. A weakened United States would mean less of an emphasis on human rights and maintenance of global order.

Less of a U.S. presence on the global stage would create gaps for authoritarian powers like China and Russia. It also means a heightened risk of conflict arising between competing for regional powers like India and Pakistan or Iran and Saudi Arabia, and an international order comprised of competing “spheres of influence.”

Rising ethnic, demographic, and economic tensions will make European integration more difficult. Furthermore, Europeans must repair the structural problems in E.U. institutions.

In North Korea, Kim Jong Un has consolidated his grip on power through patronage and fear and has doubled down on his nuclear and missile programs, developing long-range missiles that may soon endanger the continental USA.

Beijing, Seoul, Tokyo, and Washington have a shared incentive to handle security risks in Northeast Asia, but a history mutual distrust, warfare, and occupation would make cooperation between the different parties difficult.

A resumption of North Korean provocations, such as nuclear and missile tests may destabilize the balance of power in the region and result in the North’s immediate neighbors potential taking unilateral action to defend their security interests.  Kim is determined to secure international recognition of the North as a nuclear power, for security, prestige, and political legitimacy.

Leftist governments have been kicked out in Argentina, Peru, and Guatemala. Venezuela’s left-wing populist government is stripping the country of its democratic institutions in a sharp slide towards authoritarianism, leading to a sharp increase in lawlessness across the country.

Furthermore, while Venezuela doesn’t produce drugs, it’s become a major transport hub for drugs going to Europe or Africa before being routed to Europe. Drug trafficking would increase as the rule of law decreases.

Beijing and Moscow will seek to lock in competitive advantages and also to right what they perceive as historical wrongs before economic and demographic trends can present impediments and the West regains its foundation.

Both have moved aggressively in latest years to exert more considerable influence in their regions, to contest the U.S., and also to force Washington to accept exclusionary regional spheres of influence—a situation that the US has historically opposed.

Diplomatic spats, strategic political and political tensions will last between Russia and the U.S. In Washington, U.S. President Donald Trump’s administration may have few choices for relieving the strain because of increased checks on the president’s power and enlarged sanctions from the U.S. Congress.

In Moscow, meanwhile, forthcoming local and national elections will prevent the Kremlin from creating significant concessions. Consequently, sanctions enacted on Russia from the US along with the European Union probably will stay through the end of the year.

The Chinese Communist Party’s careful preparation for a change of direction was realized in the October 2017 party congress. The event reshuffled the highest ranks of the party and was a proof of President Xi Jinping’s near-absolute consolidation of power.

To date, all indications point to the Xi’s success in strengthening his grip over top decision-making bodies of both the Party and the state. Xi has already achieved the status of core leader of the Communist Party, the Chinese state and People’s Liberation Army (PLA).

Xi has also managed to quickly promote a lot of his partners to prestigious positions in 2018 and 2019. Even more significant, party members nearly unanimously endorsed the addition of Xi’s philosophy of the Communist Party Constitution at the Party Congress, positioning him alongside the venerated figures of Deng Xiaoping and Mao Zedong.

Nuclear deployment requirements for naval-based delivery vehicles remove a safety valve that, until now, has kept atomic weapons stored separately from missiles in South Asia.

At-sea deployments of atomic weapons by India, Pakistan, and perhaps China, would increasingly militarize the Indian Ocean throughout the next two decades.

The presence of multiple nuclear powers with uncertain doctrine for controlling your stresses at sea incidents between nuclear-armed vessels increases the potential risk of miscalculation and inadvertent escalation.

New Delhi, however, will continue to offer smaller South Asian nations a stake in India’s financial growth through development assistance and increased connectivity to India’s economy, contributing to India’s broader effort to assert its role as the predominant regional power.

India will be the world’s fastest-growing economies throughout the next five years as China’s economy cools and growth elsewhere sputters, but internal tensions over inequality and religion will complicate its expansion.

The threat of terrorism, from Lashkar-e-Tayyiba (LET), Tehrik-i-Taliban Pakistan (TTP), and al-Qaeda and its affiliates as well as the Islamic State’s expansion and sympathy for associated ideologies—will remain prominent in the area.

Populism and sectarianism will intensify if Bangladesh, India, and Pakistan fail to provide employment and education for growing urban populations and officials continue to govern principally through identity politics.

Continuing conflict and lack of political and economic reform threaten poverty reduction, the area’s one last bright spot.  Resource dependence and foreign assistance have propped up elites even as it fostered widespread reliance on the nation by inhibiting markets, employment, and human capital.

With oil prices unlikely to recover to levels of the petroleum boom governments may have to limit cash payments and subsidies.  In the meantime, social networks have provided new tools for citizens to vent their political frustrations.  Conservative religious groups—including Brotherhood affiliates and movements—and ethnically-based organizations like those based on Kurdish identity are poised to be superior alternatives to weak governments in the region.

Such groups typically supply social services better than the nation and their politics resonate with a general public that is more conservative and religious than the region’s political and economic elites.

Global economic headwinds also threaten improvement by keeping commodity prices low and investment weak.  Some nations who’ve made progress toward democracy remain fragile and predisposed towards violence corresponding elections.  Tensions between Muslim and Christian groups can escalate into conflict.

The threat of terrorism is likely to increase as the means and the motivations of states, groups, and people to impose harm diversify. Prolonged conflicts and the info age allow terrorists to recruit and operate on a large scale, demonstrating the evolving nature of the threat.

The post-World War II international order that enabled today’s political, economic, and security arrangements and institutions is in question. As power diffuses worldwide, seats at the table of global decision making are reshuffled.  Today, aspiring powers seek to adjust the rules of the game and international context in a way beneficial to their interests.

This complicates reform of international institutions such as the UN Security Council or the Bretton-Woods institutions, also brings into question whether political, civil and human rights—hallmarks of liberal values and US leadership since 1945—will continue to be so.

Norms that were believed to be settled will be increasingly threatened if present trends hold, and consensus to build standards can be elusive as Russia, China, along with other actors such as the Islamic State seek to shape regions and international norms in their favor.

Politics-Pakistan

Task Force (FATF), an international money laundering and terror financing watchdog would remain a threat since they have allowed four more months to extricate itself from the list of jurisdictions with strategic deficiencies, i.e. the “gray list.” Members of the FATF acknowledged the measures Pakistan has taken so far to comply with the proposed action plan but issued a warning urging the country to complete its full action plan by February 2020.

In recent years, Pakistan has stumbled from one crisis to another. The future of the nuclear-armed country, with more than 200 million mostly impoverished people, hangs in the balance. Regional rivalries, political instability, military dominance in the policy making arena, and rising religious extremist trends are adding to the intractability of the country’s challenges. Although Pakistan’s vibrant civil society, relatively open media, and the rise of an independent judiciary provide some hope, poor economic and development indicators coupled with worry demographic trends pose serious challenges to the well-being of millions of Pakistanis. seven core issue areas essential to realizing a sound future for the country by 2020: (1) strengthening democratic institutions; (2) strengthening the rule of law; (3) improving human development and social services, especially in health and education; (4) developing the energy infrastructure; (5) assisting the earthquake and flood victims in their recovery; (6) improving the internal security situation; and (7) advancing the peace process with India. Everybody in Pakistan have to examine, what is possible, project a vision of what the country should strive to be like, and presents policy recommendations in each of these issue areas.

Economy – World

Global growth will see significant recovery in the second half of 2020, particularly in the fourth quarter. Why! Because Central banks around the world up till now, busy in printing money, expanding their balance sheets and lowering interest rates will have a positive influence on the world economy in 2020. Secondly trade war between Washington and Beijing may ease down in the year.

Global growth had weakened considerably in 2019, falling from 3.2% in 2018 to 2.6 in 2019.

In 2020, The US economy will expand by 2.1%, whereas it remained around 2.0% from 2017 to 2019 on average basis. However the run-up to the 2020 presidential election can provide some policy surprises (both positive and negative) that can affect the outlook.

The slump in euro zone growth in 2019 was alarming, with some large economies, notably Germany and Italy, coming perilously close to recession. Nevertheless, there are some signs that the worst may now be over, and one expects euro zone growth to stabilize at around 0.9% in 2020. Meanwhile the results of the UK election suggest that while the worst of the Brexit uncertainty may be over, there is still a hard slog ahead, with growth dropping from 1.3% in 2019 to 0.5% in 2020.

Japan’s real GDP growth rate accelerated from 0.3% in 2018 to an estimated 1.1% in 2019. However in fourth-quarter growth has turned negative as a result of the hike in the sales tax from 8% to 10% at the beginning of October 2019. In response, the Abe government announced a larger-than-expected $120 billion, 15-month fiscal package, which will neutralize much of the negative effects of the sales tax hike. Consequently, after falling to 0.3% in 2020, Japanese real GDP growth is projected to recover to 0.5% in 2021.

China’s growth rate will fall below 6.0% for the first time since 1990. While it is tempting to blame much of the recent slowdown on the US-China trade war, the decade-long deceleration is the result of both structural and cyclical factors: an aging population and a sharp drop-off in productivity growth mean that potential growth in China is lower now than a decade ago. One can predict that China’s growth rate will slide even further, to 5.7% in 2020 and 5.6% in 2021, unless the government puts in place a more aggressive stimulus program.

Emerging markets will continue to tread water, while China’s growth rate has been a key factor in declining emerging markets GDP, emerging markets also faced two other stiff headwinds: lackluster expansions in the developed world and falling commodity prices. Recoveries in the developed world are predicted to remain fragile in the next few years, while commodity prices are expected to slide, at least in the near term. These, along with the simmering trade war and the continued decline in China’s rate of expansion, mean that there is very little scope for growth in the emerging world to rise much—if at all—from current low rates. Additionally, the record debt level in the emerging world is a growing concern.

Commodity prices will trend down. The push-pull forces in commodity markets remained in full force during 2019, with prices declining around 6.5%. Commodity price weakness will be concentrated in the first two quarters of next year, with prices then stabilizing or, for some commodities, even pushing slightly higher in the second half of 2020.

Inflation will remain subdued. Most of the recent swings in world inflation were due to volatility in the rate of price increases, with swings in the prices of oil and other commodities also a factor. There is early evidence that the underlying rates of price and wage inflation may be creeping up in the developed world, but the chances of a major “breakout” are remote—global inflation in 2020 is only expected to be 2.7%.

The global monetary easing cycle will probably come to an end. As growth faded in 2019, the Fed and other central banks enacted monetary policy easing. Signs of solid growth in the United States suggest that the Fed may not feel the need for further “insurance” cuts. In fact it is believed that there is a better than 50/50 chance that the Fed will raise rates once at the end of 2020 and again in 2021. While the challenges facing the ECB are more complex, the recently strong opposition to negative interest rates may imply that any further easing will proceed cautiously.

The US dollar will rise a little more. The US economy has been growing faster than most other developed economies and interest-rate differentials between the United States, on the one hand, and Europe and Japan, on the other, favor dollar-denominated assets. In addition, the greenback enjoys safe-haven status – along with the Japanese yen and the Swiss franc – meaning that when investors get jittery, they tend to pile into US bonds and stocks. Ironically, the escalation of the trade war has exacerbated this phenomenon—thus undermining attempts to improve the competitiveness of US companies by imposing tariffs on non-US suppliers. Going forward, these dynamics are likely to stay in place, but ease a little. We expect the US dollar to climb another 3% over the next two years, before beginning a long and gentle retreat.

Despite historically high levels of policy uncertainty, recession is still not the most likely scenario in 2020. The risks facing the global economy remain daunting: in the near term, the biggest threat is either an escalation of the US-China trade conflict or its spread to other parts of the world, notably Europe. Another potential for a policy mistake is the hesitation on the part of many governments, especially in the euro zone, to provide more fiscal stimulus. This could become a serious problem the next time growth falters. In the medium term, the high and rising corporate debt levels in both developed and emerging markets are a major threat to the current expansion, when (if) interest rates begin to rise.

Economy-Pakistan

 

Pakistan falling within good geographical location will continue with its rising inflation and lower GDP growth in 2020. Second half of 2020 may see some recovery. GDP growth rate at 5.3% in 2018 coming down to 2.5% in 2019 would continue to remain in the range 2.0 to 2.5. It must be understood that till Pakistan does not go above 5% of its GDP growth rate it cannot dent its poverty level that has gone up from 30% of population in 2018 to 40% population in 2019, neither it can generate revenue to close the gap of fiscal deficit that would remain at 7-8 % in 2020. Inflation rate at 6% in 2018 would remain in the range of 15% to 20% in 2020. So this would be a tough time for the buyers.

Stock Market would remain volatile within the range of 35000 to 45000 for 100 indexes. Unemployment rate would rise from 6% to 6.2%. Fiscal deficit would remain the main headache for the government ranging around 7-8% of GDP whereas it was around 4-5% in 2018. Current account would come down slightly to 3-4% but then can go up in case rise in oil Prices comes. SBP would try to keep its discount rate unchanged at 13.25% due to rise in inflation but in second half it can come down to 11-12% since private sector off take has gone negative. Government debt to GDP would remain in the range of 75- 95% of GDP.

For this government and SBP have to devise positive policies. Structural reforms should be made including legislation for government borrowing, Tax recovery system, Islamic Banking, on health and education policies. Three cadres of beurcrats should be formed, one for Federal, one for provincial and one for local Bodies with complete training and refresher courses. All institutions particularly judiciary should be given their due position and phrase of civil military relation should be waived from the dictionary of Pakistan. In all political and economic decisions all stakeholders including oppositions should be brought on one page.

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