he year 2022 has come to an end with the start of a global economic recession. The economic cycle is brutal. It is catalysed by and through the global political climate, through recent conflicts, barriers to recovery in a post-Covid world and disruptions in the global supply chains.

Pakistan is one of the worst affected by the global economic crisis. This article aims at identifying the issues and recommending practical solutions for long-term, sustainability-focused and consistent policies to ensure survival during the recession.

Pakistan is facing one of the worst economic crises since its independence in 1947. With a current account deficit of around $10 billion and principal repayments on about $24 billion of its external debt, Pakistan appears vulnerable to default. It needs sustainable, practical steps to avoid such a situation now and in the near future.

The year 2023 is expected to be a difficult one globally due to increasing inflation caused by the rising fuel prices primarily due to the impact of the Ukraine-Russia war. The global inflation impacts countries like Pakistan in the following significant ways, a) the huge reliance on imports, especially for fuel; b) the devaluation of a weak currency and its ancillary multiplier effect; c) the market dynamics with developed powers ensuring their energy, economic, food and other forms of security; d) disasters caused by climate change; and e) security situation created by acts of terrorism. All these causes have played their role in aggravating the economic situation.

Some of the major trade-specific challenges for Pakistan for the year 2023 include: a) the requirement for additional food imports due to the crops lost in the floods in 2022; b) the requirement of a system for robust and agile trade financing facility; c) the requirements for ease in regulations for cross-border trade; d) the inclusion of products and markets; e) requirement for Pakistan to better integrate with the global value chain through imports, re-exports and exports; f) increase in costs of gas and energy prices; g) significant mismatch in investment and trade policies; h) reaping benefits from the heavy public investments in the road and rail infrastructure established for regional integration; and i) to focus on the implementation of trade facilitation schemes in their true spirit.

Pakistan faced major floods in the monsoon season of 2022 that impacted all four provinces and almost 15 percent of the population. This has resulted in a serious food crisis and damage to crops and future yields in the Punjab and Sindh. Some of the agricultural commodities that were locally produced last year will be required to be imported this year.

The additional burden on the balance of payments will require a similar amount of additional exports and re-exports through combined and coordinated efforts for the diversification of markets and products for export. Pakistan also needs to work immediately on the carbon credit market development and integrate its sequestration potential into the international carbon credit market to ensure sustainability in financing available to cater for such losses in the future.

Pakistan’s exports primarily comprise textile products going to the European Union and the United States. The US and big players in the EU, like Germany, have officially announced a recession in the last quarter of 2022. This means that the purchasing power of the consumers will be affected and the demand for textile products will decrease. This calls for better and more coordinated efforts by the stakeholders, including the Ministry of Commerce, Federal Board of Revenue, provincial and federal boards for investment and trade, to work with the private sector to understand the requirements of the international market and develop a diversification strategy focusing on all sectors.

The Pakistan Business Council, the Overseas Investors’ Chamber of Commerce and Industry, the Federation of Pakistan’s Chambers of Commerce and Industry and sectoral and geographic business associations need to specifically engage in market research at a global level. This may be complemented by the efforts of the very able team of trade consuls and officers in various embassies abroad. Think tanks may also be involved in the evaluation of diversification approaches and integration with the global value chains. International offices of major embassies and high commissions to Pakistan can also give their inputs based on product needs.

The interventions in terms of research and policy backing may include provisions for Pakistan’s integration into the GVC as well as provisions for transit trade. The huge investments by international partners and the government of Pakistan in the development of a nationwide road transport infrastructure through initiatives like China Pakistan Economic Corridor and Central Asia Regional Economic Cooperation should bear fruit now. Branding Pakistan as a “pathway to Central Asia” is a good step but will require coordinated efforts of all stakeholders including the security agencies. This may include re-negotiation of trade terms with all neighbours, including India.

Another aspect of the reduction of imports for luxury goods to make way for necessity-based imports is the recommendation for starting a campaign under the Ministry of Commerce titled, Made in Pakistan. Similar initiatives in countries like India have been implemented to reduce import dependence.

Shopping malls and centres selling locally produced items may be incentivised over the ones that have imported items. This can be done via taxes and other fiscal instruments.

Pakistan has been improving its ease of doing business. For cross-border trade, it established a Pakistan Single Window (PSW) to facilitate the regulations of trade through an automated platform. 75-78 public regulators involved in various forms of cross-border trade are coming together on the automated platform. This can significantly reduce the time and cost of doing trade. Initiatives like the PSW need to be emphasized. The focus should be on consistent policy and better coordination between departments in this regard.

Once the exports become significantly competitive, the probability of a stable currency will increase. This will eventually have a long-term positive impact on the national economy. Energy, especially gas, requirements are one of the major barriers to cross-border trade. This requires significant and practical efforts to include Pakistan in the regional energy value chain through initiatives like Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline and Central Asia-South Asia (CASA) power project. In the short term, Iran can be a good partner to import petroleum products.

Since trade financing is a major challenge, the State Bank of Pakistan should establish a private sector-led trade financing accelerator enabling the private sector to finance its trade-related transactions. The recent issues in the letter of credit opening will also diminish once the accelerator is operational. International partners can also support such initiatives. The accelerator, in addition to the trade facilitation, should be integrated with the PSW to ensure a smooth flow of transactions.

Uncertainty can be turned into opportunities or threats. Evidence-based policymaking can help us reap benefits from the current crisis. Some of the recommendations in the article have been part of previous strategic trade policy frameworks. Their implementation may be catalysed by the current 3C (Covid, Conflict and Climate Change) crisis if all stakeholders play their part well.

The writers are associated with the Sustainable Development Policy Institute’s Centre for Private Sector Engagement