Trade ties

Pakistan’s struggling economy demands creative, strategic solutions, and there is a growing recognition among policymakers that regional trade might be one of them. Finance Minister Muhammad Aurangzeb’s recent remarks about the sensibility of trading with neighbouring countries, made during the IMF/World Bank autumn meetings in Washington, echo a pragmatic perspective that Pakistan can no longer afford to ignore. While Aurangzeb did not specifically mention any countries, the message was clear: Pakistan must rethink its position on trade with India, its largest neighbor and the linchpin of any substantial regional economic collaboration. In 2019, Pakistan formally severed trade ties with India following the latter’s unilateral decision to revoke the special status of Occupied Kashmir. The move, while understandable within the charged political context, had far-reaching economic consequences. Today, Indian goods still reach Pakistani markets but by circuitous routes, inflating prices for consumers without providing Pakistan with any of the formal trade benefits. Before the suspension, Pakistan was importing over $2 billion worth of goods annually from India, including essential items like animal fodder and pharmaceuticals, at prices hard to match elsewhere.

Beyond the India-specific issues, Pakistan’s trade relationships across the region remain significantly underdeveloped. Even with China, a close ally and Pakistan’s second-largest trading partner, exports remain modest despite multiple free trade agreements. There is also a noticeable lack of trade engagement with the lucrative markets of East Asia. Pakistani exporters have often shown a preference for Western markets, which, while valuable, entail high logistical costs. Engaging more with regional neighbours, including Afghanistan, Iran, and even distant Southeast Asian nations, could help Pakistan cut these costs while fostering a more diversified trade network. Further, the political and economic dynamics of recent years make regional trade more essential than ever. Western allies, driven primarily by self-interest, have shown a readiness to apply sanctions or withdraw support with little consideration for Pakistan’s economic stability. By focusing on regional partnerships, Pakistan could alleviate its dependency on the West and foster an economic resilience more immune to external political shocks.

The benefits of such trade expansion are not limited to goods. Pakistan’s emerging tech industry, for instance, stands to gain from collaboration with India’s mature technology sector. A cooperative technology exchange between Pakistan and India could not only fuel growth on both sides but also foster solutions to regional issues around digital infrastructure, cybersecurity, and data protection. Trade in services, particularly tech, could also create a platform for young talent to work collaboratively across borders, leveraging Pakistan’s growing pool of tech professionals alongside India’s established industry. Regional cooperation should extend beyond bilateral ties to the broader South Asian framework. Despite its limitations, the South Asian Association for Regional Cooperation (Saarc) remains the most viable platform for regional integration. Inspired by the success of the EU, an empowered Saarc could elevate South Asia’s collective bargaining power on the global stage. In a region with diverse but interlinked needs, Saarc’s revival is crucial not only for economic self-reliance but also for political stability. For Pakistan, opening up to regional trade would mark a significant shift, one that could redefine its economic outlook and provide the lifeline that the economy urgently needs.