Pakistan’s struggling economy urgently requires innovative and strategic solutions, and policymakers are increasingly considering regional trade as a viable path forward. Finance Minister Muhammad Aurangzeb highlighted this approach during the recent IMF/World Bank autumn meetings in Washington, suggesting that trading with neighboring countries could offer much-needed economic relief. While Aurangzeb did not directly mention any specific nations, his statements signaled a shift in thinking: for Pakistan to revive its economy, re-evaluating trade relations with India—its largest neighbor and a crucial player in regional economic integration—has become an unavoidable prospect.
Pakistan severed formal trade ties with India in 2019 after India unilaterally revoked the special status of Jammu and Kashmir. Although this move was seen as necessary given the heightened political tensions, it has also had lasting economic repercussions. Indian goods still find their way into Pakistani markets through indirect routes, inflating prices for consumers and denying Pakistan the benefits of formal trade. Before 2019, Pakistan imported more than $2 billion worth of goods from India, including essential items like animal fodder and pharmaceuticals, which have been difficult to source at competitive rates from other countries. Restoring trade with India could ease price pressures, increase consumer access to essential goods, and support economic stability.
Beyond India, Pakistan’s regional trade relationships remain significantly underutilized. Although China, a close ally and Pakistan’s second-largest trading partner, has a robust relationship with Pakistan, actual export volumes remain modest. Multiple free trade agreements have not yet unlocked the full potential of this partnership. Pakistan also lacks substantial trade engagement with East Asian markets, which could offer profitable export opportunities and reduce its reliance on more distant Western markets. Historically, Pakistani exporters have focused on Western markets, which bring high transportation and logistical costs. Shifting attention to neighboring economies, including Afghanistan, Iran, and Southeast Asian countries, could cut these costs and provide Pakistan with a more diversified, resilient trade network.
The geopolitical landscape further underscores the importance of regional partnerships. Western allies, often driven by their own strategic interests, have shown a willingness to impose sanctions or reduce support, sometimes disregarding the impact on Pakistan’s economy. By strengthening ties with regional partners, Pakistan could decrease its dependency on Western economies, thereby building a more self-sustained and politically resilient economic foundation.
The advantages of expanding regional trade extend beyond the exchange of goods. For example, Pakistan’s growing tech industry could benefit immensely from collaboration with India’s mature technology sector. A cooperative exchange in technology between the two countries could drive mutual growth and offer joint solutions for shared regional challenges in digital infrastructure, cybersecurity, and data protection. Service trade, particularly in the technology sector, could also provide a platform for young talent in Pakistan and India to collaborate across borders, creating opportunities for Pakistan’s emerging tech workforce to engage with India’s well-established industry.
To achieve broader economic integration, Pakistan should advocate for the revitalization of the South Asian Association for Regional Cooperation (SAARC), which, despite its limitations, remains the most viable platform for fostering regional ties. Inspired by the European Union’s success, an empowered SAARC could boost South Asia’s collective economic power on the global stage. Revitalizing SAARC would also promote political stability across the region, reducing dependence on external powers. In a region with diverse but interdependent economies, SAARC’s revival is crucial not only for economic self-reliance but also for long-term regional cohesion.
For Pakistan, embracing regional trade would represent a transformative shift in economic policy. This approach could potentially reshape Pakistan’s economic outlook, making the country less vulnerable to external pressures and better positioned to pursue sustainable growth. As Pakistan navigates its economic crisis, expanding regional trade may offer the lifeline its economy desperately needs, providing a foundation for prosperity, stability, and regional cooperation.
Shafaqna Pakistan
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