Economic diplomacy — the pathway to Pakistan’s geoeconomic aspirations

Pakistan’s foreign policy has largely been influenced by geopolitical considerations. The strategic position has added to the country’s geopolitical significance as it connects Central Asia, South Asia, and the Middle East. Taking advantage of its geostrategic location, Pakistan aligned with the West during the Cold War and the War against Terrorism, and gained both military and economic assistance during these periods.

However, due to various internal and external factors, Pakistan is not in the same position as it was a few decades ago to capitalise on its location solely. Diminishing interest of the United States in the region, the West’s shifting focus towards countering the rise of China and its focus in Ukraine, together with Pakistan’s internal political instability and economic meltdown has affected the country’s ability to assert its significance. A shift in global power dynamics is also being realised through the emergence of middle powers and rapid technological advancements.

Aligning Pakistan’s national strategy with the shifting dynamics is essential for survival. While the rhetoric of geopolitical significance has been going on for decades, it is important to realise that Pakistan has suffered more harm than good due to its geography. Based on this, it is imperative to shift our focus from geopolitics to geo-economics.

The National Security Policy of Pakistan (NSP) 2022, rightly emphasises this shift - reflecting the need for strengthening the economy as a major determinant of national security, national image, and diplomatic relevance.

NSP underscores geoeconomics, as the primary guarantor of national security, highlighting the importance of global integration, trade, and economic resilience.

A way to achieve this objective is to expand partnerships with nations like Africa, Southeast Asia, and Europe, enhance regional connectivity, encourage technology transfer, attract foreign investment, and reduce trade barriers through economic diplomacy. Economic diplomacy is defined by Szatlach as “a tool or process, by which the state creates its economic relations with other subjects of international relations,” broadly treats the economy as an instrument of foreign policy. It has become an essential instrument for advancing national interest and enhancing international economic cooperation in the 21st century.

Economic diplomacy requires building strong relationships with the stakeholders and advancing economic interests in a sustainable manner. To stay relevant in the changing geopolitical environment, economic diplomacy should be the new focus of policymakers in Pakistan Nearly three years after the announcement of NSP, various projects like CPEC-II have been initiated to improve Pakistan’s economic diplomacy. Furthermore, a renewed focus has also been placed on previously started projects.

The Turkmenistan-AfghanistanPakistan-India Natural Gas Pipeline (TAPI) and CASA 1000 are two examples that will enable Pakistan to enhance its geo-economic significance. The Trans-Afghan Railway line has a similar motive; connecting Central Asia with Pakistan. These projects will not only enhance trade but also facilitate regional collaboration.

On a global front, joining the International North-South Transport Corridor (INSTC) will not only allow Pakistan to collaborate and improve its relationship with Russia, but also enable Pakistan to enjoy economic benefits. INSTC is likely to enhance trading by 30%, which could translate into trade of billions for Pakistan.

For this collaboration with Russia to be successful, Pakistan needs to engage in effective economic diplomacy with the likes of India to convince its Western partners that the agreement is important for its economic sustainability. In terms of attracting FDI, we see a general decline in Net FDI for example, from US and the UAE. Inflows from the US in FY23 totalled to $217m whereas the total inflows in FY24 dropped to $157.6m. Similarly, there was a $24.7m fall in the FDI inflows from the UAE. Chinese FDI inflows, however, saw a rise of $202.1m to $944m by FY24.

This presents another opportunity for Pakistan to engage in economic diplomacy to increase FDI inflows. Apart from building a strong external front, economic diplomacy requires internal stability and unity. Focused and cohesive efforts by civil and military institutions, the private sector, the industry, and academia are required to devise a policy that will help strengthen the economy to achieve the geoeconomic objectives of NSP. A major overhaul in Pakistan’s economy and international trade relations will not only improve the efficacy of its economic diplomacy but will also improve its foreign relations and strengthen its position on political fronts.

Thus, prioritising economic diplomacy and regional connectivity is the way forward for Pakistan to regain its global significance. To secure the future, it is imperative for the country to align its foreign policy with economic priorities, aiming towards growth and stability. (The writer is a researcher at the Centre for Aerospace and Security Studies (CASS), Lahore. She can be reached at info@casslhr.com)