By : Bilal Ahmed Dar
The devastation of War is not for one but for all parties, there is more loss of life and property for one party but it also has a negative effect on the economy of the other party, while the world cannot be safe with these effects.
In war between Russia-Ukraine, Ukraine is devastated but its negative effects are being felt in Russia and around the world, especially in Pakistan and could be even greater.
What are the disadvantages of this war to Pakistan?
It is important to first review Pakistan’s trade and defence relations with Russia and Ukraine.
Wheat:
Pakistan is basically an agricultural country. Wheat is cultivated on 37% of the total cultivable area in Pakistan. Despite this, last year, in 2021, our total wheat production was around 29 million tons that was less than our needs, so Pakistan had to import 9 million tons of wheat worth about one (1) billion US dollars to meet this shortfall. In the first seven months of the current financial year 2021-2022, around 67 million dollar worth of wheat has been imported.
The government of Pakistan has set a target of 30 million ton for wheat production this year, but this year the target will not be achieved due to excessive increase in prices of fertilizers and reduction in supply of fertilizers to farmers. Therefore, Pakistan will have to import more wheat this time than in the past year. Russia and Ukraine produce 40% of the world’s wheat. Pakistan imported 80% of its wheat from Russia-Ukraine in 2021, which was found in the lowest rate in the world market. Now two countries are at war and the United Nation has also imposed many sanctions on Russia, that is why now Pakistan cannot import wheat directly from Russia-Ukraine, secondly it is not possible to export wheat from these two countries to the world, therefore the price of wheat in the world market will increase which will have negative effects on Pakistan.
Ukraine’s Ambassador to Pakistan Mr. Markian Chuchuk has informed that Ukraine is the one of the largest food supplier country in the world. In 2021, Ukraine’s food exports were 27.9 billion dollar which includes 20 million tons of wheat and 459 thousand tons of poultry. Ukraine’s exports to Asian countries reach around 13.7 billion dollar. Russia’s invasion of Ukraine will lead to dramatic rise in food prices and shortages in world market. Pakistan will be among the first countries to be affected by Russian aggression because Ukraine is the second largest supplier of wheat around 39% to Pakistan.
Petroleum Products:
20 to 25% of Europe’s oil and 30 to 40% of its gas needs come from Ukraine.
Pakistan does not buy oil from Russia, but due to Russia-Ukraine war the oil prices in the world continue to rise. At present, the price of oil is 100 dollar per barrel which can reach to 125 dollar per barrel soon. The direct effects of which will be very negative on the Pakistan’s economy.
At present petrol price in Pakistan is Rs.160/litter (0.87 dollar), due to which the prices of everything from electricity, transport fares and food items are increasing which has caused a storm of inflation in Pakistan.
Impact on Pakistani Industrialists:
Ukraine’s Ambassador to Pakistan Mr. Markian Chuchuk has informed that cotton, textile, pharma, Iron, steel, plastic, seeds, fertilizer, rubber, glass, copper, machinery, tea, coffee, paper and other commodities are traded between Pakistan and Ukraine. In 2020, bilateral trade has reached around 411.814 million dollar. In October, 2020 a (66) member group from Pakistan business community paid a successful visit to Ukraine in which the business community of both countries also signed a memorandum of understandings. This bilateral trade has been severely affected by the Russian aggression. In addition, there are hundreds of Pakistani students studying in Ukraine, whose education will be severely affected.
Defence relations:
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According to the Ukrainian Embassy, the cooperation between Ukraine- Pakistan in military and technical fields is lasting and very successful.
In multi-dollar first agreement in 1996, Pakistan was provided with modern tanks as well as long term orders were provided to Ukrainian producers. Since then, about 150 military technical agreements worth over 1.5 billion dollar have been signed and implemented. In addition to the figures mentioned above by the Ukrainian Ambassador, there has been a great deal of cooperation between Pakistan and Ukraine in the field of defence which has been increasing over time.
Ukraine is supplying Al-Khalid MB 2000 series engine to Pakistan.
When Russia invade and occupied Ukraine’s Crimea region in 2014, there were threats of large scale war between Russian and Ukraine. In view of that situation, the then Defence Minister of Pakistan Raja Tanveer Hussain had requested the Ambassador of Ukraine to Pakistan (Mr. Volodymyr Rakomov) to terminate the agreement but the Ukrainian Ambassador promised that the engines would be delivered on time, in accordance with the agreement and so it happened. In addition, T-80 UD tanks were also taken from Ukraine in 2009.The Ukrainian embassy and Pakistan’s defence ministry declined to comments on defence agreements between the two countries are currently being worked on. But according to sources, in Feb., 2021, defence deals worth 85 million dollar were signed with Ukraine, in which work will do to repair T-80 UD tanks and equip them with modern technology. In addition, agreements have been made to supply of engines of 6TD 1 and 6TD 2 in tanks.
Semiconductor chips for vehicles:
The United States relies on Ukraine for 90% of its supply of new grade semi-conductors. There also a similar situation in Pakistan. Semi-conductors in almost all vehicles manufactured in Pakistan are imported from Ukraine and the prices of vehicles will increased if the supply of these semiconductors reduced from Ukraine.
Political and other economic effects:
Pakistan’s economic situation is already very bad. Unemployment is rising and it has become impossible to find employment and the inflation rate has been entered in two digit figure and which is very high. In such situation, Prime Minister Imran Khan not only went against the will and desire of the United States in the United Nations but also played a neutral roll against Russia voting.
Secondly Imran Khan criticized the process of presentation of no-confidence motion against him by the opposition parties called it an American conspiracy in his speech. He has also accused the United States of threatening to kill me and overthrow my government and this has been informed by the Pakistani Ambassador to the United States through his letter. After his statement, there has been a great heat in the politics of Pakistan, but at the same time there are fears of increasing difficulties for Pakistan at the international level. At present, 60 % of Pakistan’s trade is with the United States and European countries. It is feared that the US and Europe may end the facility of GST plus (goods and services tax) to Pakistan in trade. In addition, many unannounced sanctions could be imposed on Pakistan’s export. Financial difficulties for Pakistan could be exacerbated (worse) by the IMF and other financial institutions. Such reaction has started to come under which the getting next instalment of loan from IMF process has to be completed in February and in April, Pakistan was to receive the next instalment of the loan but the process of review has not started yet. It seems that this process will not be completed by April either. Therefore delay of this process Pakistan’s foreign exchange reserves (balance of payments (BOP) is a statement of all transactions made between one country and the rest of the world over a defined period of time) will have a profound effect on Pakistan’s current foreign exchange reserves.
Pakistan’s current account deficit is growing rapidly and at present, it has reached 12.1 billion dollar. Now Pakistani economists are expressing this concern by the end of the current financial year, the current account deficit could reach 20 billion dollar. As a result, Pakistan will face severe difficulties in repaying its external debts.
Another fear from the United States and European countries that to keep Pakistan in gray list in FATF (Financial Action Task Force) meeting which will held in June. While the IMF and other financial institutions decide their loan giving condition by seeing the FATF (Financial Action Task Force) list which will be another potential loss to Pakistan.
The price of oil in the world market has been steadily rising because of the war between Russia and Ukraine, due to which Pakistan’s foreign exchange reserves are rapidly declining.
According to the State Bank of Pakistan, Pakistan’s current foreign exchange reserves have reached to 12 billion dollar, which is equivalent to Pakistan’s two month import bill. In other words, Pakistan can import only two months from this amount and if Pakistan’s foreign exchange reserves fall further during this period then imports will be further affected and our situation will be worsen more.
Pakistan is seeking more cooperation and assistance from China to mitigate these negative effects. In this regard, Pakistan is trying to reschedule the debt that had to repay to China in April and given Pakistan one more year concession in payments. China has given concessions of two billion dollar so far.
As a result of this war, some countries in the Russia block, including China, have started import in Chinese currency. Economists say that if the use of Chinese currency increases further globally, its effects will be felt in Pakistan as well because it will increase the currency of China and Pakistan has a lot of trade, especially exports with China, which will increase Pakistan’s trade deficit.
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