By Dr. Sahibzada Muhammad Usman
The decision of Pakistan to invest $582 million in the BRICS backed New Development Bank (NDB) is a radical change in the country’s economic direction. Securing a 1.1 per cent stake in the NDB will help the Pakistan secure better financial options, reduce its dependence on the West financial institutions and enhance its global economic governance.
First, it gives Pakistan fiscal autonomy while secondly, it boosts the ties between Pakistan and BRICS (the other four BRICS nations being Brazil, Russia, India, China, and South Africa). This move represents a determination to march on with sustainable development and financial sovereignty on the country’s part, aware of the complications brought by global finance.
Financial assistance to Pakistan has always come from the International Monetary Fund (IMF) and World Bank. But funding them usually comes with onerous conditions, such as policy directives that affect the country’s national economic decisions. In investing in the NDB, Pakistan gains a financial institution alternative to the one that is constrained by excessive policy controls and provides flexible financing. This approach frees the country from traditional external pressures pertaining to Western lenders to pursue infrastructure, energy, and development projects.
It is a bank established in 2015 and is designed to be an alternative to Western dominated financial institutions. Along with low and competitive interest rate and fewer conditionality’s, the NDB offers project based financing, which is offered by other banks and is an attractive option for emerging economies. By taking a stake in the NDB, Pakistan enhances its global influence on the financial decision making, and this is in line with its overarching aim of greater economic resilience. As a shareholder, Pakistan gets funds for its long term economic growth and stability through making its contribution to the fund.
One of the positive sides through which this investment benefits Pakistan is the diversification of Pakistan’s financial portfolio. Historically, the country has been at risk for economic volatility because it has over-relied on one group of lenders. Thus, Pakistan brings the NDB into its financial framework, thereby reducing its vulnerabilities to financial shocks and external debt. This is in line with government’s vision of fiscal autonomy and it will afford the implementation of economic policies that are in favor of national interest instead of giving in to external influences.
NDB financing specifically has the capacity of significantly influencing infrastructure development as a key area. Financing gap for Pakistan’s ongoing infrastructure projects is a massive chunk of capital investments that NDB’s funding is in demand for. In particular, this investment will be very attractive to energy projects, which are critical to resolving Pakistan’s power shortages and increasing industrial activity. Also, the NDB’s financing focus on sustainable development aligns with Pakistan’s own climate resilience and green energy ambitions, and the proposal that future infrastructure projects incorporate environmental considerations.
Pakistan’s membership in the NDB is also a sign of improving Pakistan’s economic global positioning. New trade, investment and financial linkages through economic cooperation with BRICS countries can be sustained. As a BRICS member and long term ally of Pakistan, China has already played a major role as infrastructure projects in China Pakistan Economic Corridor (CPEC). Pakistan could further increase cooperation with other BRICS members like Russia and Brazil while regional cooperation and mutual economic growth between Pakistan and the other BRICS members.
The second major benefit of NDB membership is likely to expand the confidence of investors in Pakistan. All too often, foreign investors have shied away from this country due to economic instability and external debt concerns. By managing to obtain an alternate financing source, Pakistan conveys its good indications of money related stability and development. A diversified financial strategy brings a relief of the investor that the country is putting down on the ground efforts to put the country’s fiscal responsibility and the economy resilient.
In addition to bringing down Pakistan’s extrapolated external debt burden, the NDB participation would enable the country to take self-reliant economic policies. The NDB financing is also flexible enough enabling Pakistan to begin developing such projects without the restrictive conditions to which Western institutions are accustomed. Such autonomy allows the government to choose national interests and formulate economic reform that leads to long term stability.
Pakistan’s investment in the NDB is strategic and also allows for knowledge exchange and exchange of expertise with other member countries. The NDB offers a source of good practices in infrastructure development, financial management, and sustainable growth. Engagement with other BRICS countries’ experienced financial institutions and policymakers can help Pakistan’s economic governance and decision making capabilities to improve.
Challenges are still ahead, even though the benefits of NDB membership are great. The NDB funding needs to be managed by Pakistan well to make the project viable, productive and serve the national interests. In addition, the NDB is a new financial institution and is in the process of expanding its global reach. NDB requires Pakistan’s involvement in decision making processes at each level, to address Pakistan’s interests and safeguard its interests.
Dr. Sahibzada Muhammad Usman is a Research Scholar and Academic; Ph.D. in Political Science at the University of Pisa, Italy. Dr. Usman has participated in various national and international conferences and published 30 research articles in international journals.
Eurasia Review
