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Editorial: Prosperity through Trade

Pakistan must address trade imbalances by expanding exports if it has any hope of achieving economic prosperity

by Editorial

File photo. Johannes Eisele—AFP

The incumbent government has made clear the need to attract investment and expand Pakistan’s exports for economic prosperity, but the road to achieve this comes with an array of complex challenges. A key issue for an import-dependent economy like Pakistan is global supply chain disruptions, most notably seen with mounting pressure on oil prices amidst ongoing tensions in the Middle East. Even a minor hike in oil prices has a top-down effect on inflation, boosting input costs that reduce the competitiveness of our exports. To overcome this, Pakistan needs to diversify its supply sources, strategically stockpile critical raw materials, and invest in technology to enhance supply chain visibility, but these steps require funds that the country is still struggling to secure.

Another means of countering inflationary pressures is implementing fiscal and monetary policies that ensure access to affordable credit and incentives for export-oriented industries to maintain their competitiveness. The country also has a longstanding trade imbalance problem, with imports consistently exceeding exports, putting pressure on foreign exchange reserves and boosting currency devaluation. These are curtailed in the short-term, as Pakistan has been doing, through stringent policy controls, but a long-term solution requires policies that encourage exports and focus on value addition.

A key untapped market for Pakistan is regional trade. Trade between Pakistan and India is practically nonexistent due to prevailing tensions, while Islamabad avoids expanding trade with Tehran due to fear of sanctions. Efforts to expand trade with China have continuously struggled to take off, and a Free Trade Agreement with Afghanistan has mostly just boosted smuggling. To overcome this, Pakistan must expand diplomatic efforts for stable relations with all its neighbors, and seek regional trade agreements to expand market access. To fully avail this potential, the country must also upgrade existing infrastructure by investing in modernization to enhance the ease of doing business and reduce logistics costs.

None of these steps would be easy to achieve, especially in a country like Pakistan with excessive bureaucratic red-tape and byzantine regulations that even government officials aren’t fully aware of. But if the incumbent government can achieve them, it would truly put the country on the path to economic success and help it break the “begging bowl” that has now come to define its economic policies.

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