Disputes with neighbours costing Pak dearly

Lack of active engagement in regional trade certainly contributes to Pakistan’s failure to capitalise it’s strategic location for diversifying its trading partners and strengthening its economy. Baring China, its trade relations with the other three bordering countries of Afghanistan, India and Iran are hardly any substantive

During the recently concluded Shanghai Cooperation Organisation’s (SCO) Council of Heads of State meeting in Astana, Kazakhstan, Pakistan Prime Minister Shehbaz Sharif highlighted Pakistan’s geostrategic location as an “ideal conduit for connectivity” and emphasised its potential to further enhance economic interlinkages in the region.

While Pakistan’s position could indeed facilitate regional trade and potentially help revive its struggling economy, its historical preference for economic ties with the West over its neighbours, with the notable exception of China, has left it regionally isolated and overly dependent on American and Chinese benevolence.

Several factors have hindered Pakistan’s economic integration within the region. These include political and territorial disputes with neighbouring countries, both perceived and actual security concerns, a limited range of exportable products, and a reliance on the West for trade and aid. These elements are key contributors to Pakistan’s ongoing economic isolation.

As such, Pakistan's regional economic isolation is underscored by its limited participation in active regional trading blocs. Although Islamabad is nominally a member of the Economic Cooperation Organisation (ECO) and the South Asian Free Trade Area (SAFTA), both groupings have remained largely non-operative since their inception and more so because of Islamabad’s actions.

This lack of active engagement in regional trade certainly contributes to Pakistan’s failure to capitalise it’s strategic location for diversifying its trading partners and strengthening its economy. Baring China, its trade relations with the other three bordering countries of Afghanistan, India and Iran are hardly any substantive.

Consider Iran, Pakistan’s western neighbour. Despite sharing over 900 km of border, bilateral economic cooperation between Islamabad and Tehran has been minimal.

As of 2022, Pakistan’s imports from Iran were just $848 million, while its exports to Iran were only $162 million. By the end of 2023, the total trade volume increased to $2 billion.

During his maiden visit to Pakistan in April, Iran’s Late President Ebrahim Raisi was prompted to highlight the dismal state of their bilateral economic cooperation, stating that the “economic and trade volume between Iran and Pakistan is not acceptable at all.”

He announced a commitment to increase the trade volume to $10 billion as a first step toward strengthening ties. However, the likelihood of this commitment translating into improved trade dynamics remains uncertain due to Islamabad's susceptibility to the US pressure against engaging with Tehran, as part of Washington’s policy of isolating Iran.

It may be noted that the US quickly warned Islamabad against deepening its economic engagement with Tehran, threatening sanctions. As such, this alliance with the US has hindered Pakistan and Iran from enhancing their economic cooperation over the years.

It begets the assertion that if Islamabad had maintained its strategic autonomy, it could have leveraged Iran’s economic isolation to its advantage, acting as a frontline state similar to what the United Arab Emirates, especially its Dubai emirate, has done over the years.

Despite strained Tehran-Abu Dhabi dynamics, Dubai has played a crucial role in facilitating Iran’s economic outreach to the world, a role Pakistan could have easily assumed due to its geographic proximity to Iran.

Similarly, Pakistan, which supported the Afghan Taliban’s takeover of Kabul in August 2021, has failed to establish sustainable bilateral trade cooperation with Afghanistan.

Contrary to expectations that a friendly regime in Kabul would enhance Pakistan’s internal security and allow it a greater economic role in the country, relations between Pakistan's military-dominated establishment and the Afghan Taliban government have consistently deteriorated over the last two years, as Kabul has overlooked Islamabad dictations, especially with regards to the presence of Pakistan Taliban in Afghanistan.

This has not only exacerbated Pakistan’s security challenges but also restricted its influence over Afghanistan’s economic outreach to the world.

As such, Pakistan-Afghanistan bilateral have continued to decline and failed to witness a turnaround even after the Taliban takeover.

Apparently, Pakistan's exports to Afghanistan have significantly dropped from $2.1 billion in 2012 to an estimated $969 million in 2023, according to the United Nations COMTRADE database. Meanwhile, Afghanistan’s exports to Pakistan were estimated to be around $440 million in 2023.

As with Iran, Pakistan’s economy would have benefited from maintaining cordial relations with the Taliban regime by serving as its gateway to the world. However, instead of leveraging the geo-economics through Iran and Afghanistan, Pakistan has isolated itself in the region due to its flawed policy outlook.

Pakistan's economic cooperation with India is again abysmal. The two countries have not maintained full diplomatic relations since 2019, when Islamabad recalled its High Commissioner from New Delhi in response to India's constitutional reorganisation of Jammu and Kashmir, an internal matter for India.

This diplomatic rift led to a significant decline in trade, from $2.5 billion in 2018-19 to just $0.6 billion by 2023. In 2023, Pakistan’s exports to India were estimated at a mere $20 million, while its imports from India stood at $627 million. Notably, India's trade with Pakistan constitutes only 0.1 per cent of its total exports and 0.03 per cent of its total imports for that year. With its economy in free fall, Pakistan has recently expressed a desire to re-establish trade relations with India. Pakistani officials, including Foreign Minister Ishaq Dar, have made multiple public appeals in recent months. However, New Delhi has largely ignored these overtures.

For India, it has made it clear that terrorism and trade cannot coexist and unless Islamabad takes concrete steps to address New Delhi’s concerns there will be no resumption of trade relations.

On the other hand, despite its expressed desire to improve relations with India, Pakistan has failed to take meaningful steps to curb its support for terrorism in India. The recent instances of terrorist attacks in Jammu by Pakistan-based terrorist groups, clearly demonstrate a lack of genuine commitment on Pakistan’s part to foster cordial relations with India.

In contrast, consider Pakistan’s economic relations with the US. According to the Pakistan Bureau of Statistics report for 2023, the US continues to be the topmost export destination for Pakistani goods.

Pakistan’s exports to the US were recorded at $5.1 billion, constituting 21.23 percentage share in the country’s total exports. Likewise, Pakistan imported goods worth over $2.1 billion during the same year, thereby totalling their total bilateral trade over $7.2 billion. This shows Islamabad’s continued preference for overseas trade partners over its immediate neighbours.

It appears that Pakistan is unwilling to shed its dependency on the West and diversify its economic relations, and more so on integrating itself in the regional geoeconomic mix.

Islamabad needs to understand that profound economic engagements with the regional countries are a prerequisite to not only overcome its regional trade isolation but also to forge a meaningful economic recovery.

This is a golden opportunity for Islamabad to leverage its geostrategic position more effectively so as to actively participate in regional trade initiatives to become indispensable to regional economic interlinkages.

Unless and until, Pakistan change its State policy towards its immediate neighbours, it will continue to be a dependent aid economy and will fail to make any meaningful economic recovery.