The global financial crisis started at the fag end of the 1990s from South East Asia, destabilising many national economies one after another including that of Russia and finally hit the most developed economies of the West.

The Covid-19 outbreak in China that spared no country had a crippling effect on the fragile recovery of the global economy from the Great Recession.

Now the theatre of war has expanded from the destabilised regions of the South to the North with Europe primarily facing much of the heat of the Russian invasion of Ukraine. And the ‘global village’ is paying the price of its fallout on the international markets with precious lives being lost and millions forced to abandon their hearth and homes.

In a statement on March 5, the International Monetary Fund warned “the ongoing war in Ukraine and associated sanctions will have a severe impact on the global economy,” noting that the crisis was creating an adverse shock to inflation and economic activity at a time when price pressures were already high.

The Food and Agriculture Organisation, which tracks the most globally traded food commodities, reported that world food prices had hit a record high in February to post a 20.7 per cent surge year-on-year in January. The international prices of oil, gas and coal have gone up abnormally. To prevent further destabilisation of the global economy, it is in the interest, as well as the duty of the international community, to step up coordinated diplomatic efforts to end the war swiftly.

Policymakers need to examine closely how and why China has focused on improving its trade relations with India notwithstanding its border dispute — perhaps Pakistan’s geo-economics strategy can be made more effective by learning from the Chinese experience

Pakistan’s external sector will come under further pressure from higher global inflation and sluggish growth of the world economy. The local business community says that business thrives in peaceful environments and they abhor disruption and uncertainty. Heavily foreign-indebted Pakistan badly needs foreign and local industrial investment that helps create jobs.

“If there is a situation in the global financial system that presents a challenge to emerging markets,” says State Bank Dr Governor Reza Baqir, “we are prepared to act.” If oil prices remain high or if the oil import component in our current account deficit increases, he added, the next meeting of the monetary committee could be held ahead of the schedule.

The PTI government has reportedly sought Chinese financial support of $21 billion for the rollover of existing loans of $10.735bn and $10bn as deposit funds to meet the financial challenges. It is time for Pakistan to build a robust self-reliant economy without which efforts to conduct an independent foreign policy and safeguard economic sovereignty will remain mere rhetoric.

Looking at the big global picture, former World Bank vice-president and ex-Pakistan’s caretaker finance minister Shahid Javed Burki observes: “We can anticipate significant changes in the global order once the current Ukraine crisis is over.”

The United States told Pakistan on March 4 that the war in Ukraine could have regional and global consequences. To quote The Economist “immediate global implication of the Russian invasion of Ukraine will be higher inflation, lower growth and disruption of financial markets as deeper sanctions take hold. The long-term impact will be that it will accelerate the division of the world into two blocs. It will change the way the world economy operates for decades to come.”

The best way for Pakistan to adjust to changing global realities is to diversify its production base, range and destination of export products as fast as possible while strengthening traditional ties with current trading partners as well as forging new meaningful trading partnerships. For example, less than 1pc of Pakistan’s exports go to Russia and imports account for 0.9pc. Russia has virtually no role in Pakistan’s economy. Economic cooperation with Russia can be expanded over time, starting from the energy sector.

The policymakers also need to examine closely how and why China has focused on improving its trade relations with India notwithstanding its border dispute with its neighbours. Perhaps Pakistan’s geo-economics strategy can be made more effective by learning from the Chinese experience. Despite the North Atlantic Treaty Organisation threat, Russian defense spending is less than that of China and India. Instead, Moscow has focused on building a resilient and independent economy.

In an article with the headline War, what is it good for? Nobel Prize winner Paul Krugman quotes from the famous book titled Great Illusion by British author Norman Angell who wrote in 1909 that “war had become obsolete.” Mr Angell had pointed out that even the victors in war could not derive any profit from their success. He argued that everything changed with the rise in vital inter-dependence of nations. It may be recalled that the European Union was created to avoid wars in the Western part of the continent and forge an integrated regional market.

After World War II, Mr Krugman recalls, “Britain emerged as a diminished power and conversely, utter defeat didn’t prevent Germany and Japan from eventually achieving unprecedented progress and prosperity.”

Some US analysts believe a prolonged war in Ukraine will plunge the Russian economy into a deep depression despite its huge foreign reserves and reduced foreign trade in dollars. However, the Russian invasion of Ukraine has coincided with the withdrawal of US and allied troops from Afghanistan with no military gains to show. And publicly disagreeing with his foreign secretary, head of the UK armed forces Admiral Tony Radakin said it was ‘unlawful and unhelpful’ for Britons to go and fight against Russia in Ukraine.

It is also argued that the US and Europe would likewise be damaged in the economic warfare. Western Europe imports 25pc of their oil and 40pc of their gas from Russia. On March 8, the US banned oil and energy imports from Russia. On the same day, the secretary of the Russian ruling party’s general council Andrei Turchak said ‘United Russia proposes nationalising production plants of foreign companies that announce their exit and closure of production in Russia. In a statement he said ‘shutting operations’ was a ‘war’ against Russian citizens.

Russian banks said on March 6 they planned to issue cards using China’s UnionPay system after Visa and Mastercard suspended their operations in Russia. Beijing is doing business with Russia as usual.

About one-third of the Russian trade with China involves payments in dollars, down from 97pc from 2014. Both countries have been making efforts to develop alternative payments system to reduce their reliance on dollar-based systems like Swift.

Published in Dawn, The Business and Finance Weekly, March 14th, 2022