Pakistan’s Deputy Prime Minister Assesses Bilateral Economic Ties: Progress, Challenges, and Future Outlook

Islamabad, [Date] — Pakistan’s Deputy Prime Minister (DPM) has concluded a comprehensive review of the country’s bilateral economic cooperation, assessing gains in trade, investment, and strategic partnerships while acknowledging persistent hurdles in implementation. The assessment, conducted amid rising global economic uncertainty, highlights both tangible achievements and areas requiring urgent policy adjustments to sustain momentum. Officials and analysts say the findings will shape Pakistan’s diplomatic and economic strategy in the coming months, with key focus on China, the Gulf states, and regional allies.

According to government sources, the DPM’s review—conducted over the past two weeks—evaluated over 15 major bilateral agreements, including trade pacts, infrastructure projects, and energy collaborations. While progress has been made in sectors like textile exports to China and Gulf Cooperation Council (GCC) countries, delays in project timelines and bureaucratic bottlenecks remain critical challenges. The assessment also underscores the need for deeper integration with regional supply chains, particularly in light of shifting global trade dynamics.

This analysis provides a detailed breakdown of the DPM’s findings, the economic sectors under scrutiny, and the implications for Pakistan’s economic diplomacy.

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What Did the DPM’s Review Cover?

The DPM’s assessment focused on three core pillars of Pakistan’s bilateral economic cooperation:

• Trade and Export Growth: Performance under existing free trade agreements (FTAs) with China, the UAE, and Malaysia, alongside barriers to market access.
• Infrastructure and Investment: Progress on flagship projects like the China-Pakistan Economic Corridor (CPEC) Phase II and Gulf-led initiatives in energy and ports.
• Strategic Partnerships: Alignment with regional blocs such as the Economic Cooperation Organization (ECO) and potential expansions with Turkey and Iran.

Sources close to the government state that the review identified three key areas of concern:

• Slow Disbursement: Delays in foreign direct investment (FDI) under CPEC and Gulf-led projects, with only 68% of Phase II commitments materialized as of mid-2024.
• Regulatory Gaps: Customs and tax inconsistencies hindering seamless trade flows, particularly with China and GCC nations.
• Local Industry Readiness: A mismatch between Pakistan’s export capabilities and the demand from partner countries, especially in high-value sectors like pharmaceuticals and IT services.

“The review wasn’t just about tallying numbers—it was about understanding why certain agreements aren’t delivering as expected,” said a senior official involved in the process. “For example, while textile exports to China have grown by 12% year-over-year, we’re still not leveraging the full potential of our FTAs due to non-tariff barriers.”

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Who Is Driving Pakistan’s Bilateral Economic Agenda?

The DPM’s review involved consultations with multiple stakeholders, including:

• Government Agencies: The Ministry of Commerce, Board of Investment (BOI), and State Bank of Pakistan (SBP), which provided data on trade flows and investment approvals.
• Diplomatic Missions: Ambassadors from China, the UAE, Saudi Arabia, and Malaysia shared updates on ground-level implementation challenges.
• Private Sector: Representations from the Pakistan Business Council and industry associations like the All Pakistan Textile Mills Association (APTMA) highlighted sector-specific pain points.
• Multilateral Partners: Input from the Asian Development Bank (ADB) and World Bank on infrastructure financing gaps.

Key Players and Their Roles:

Analysts note that while China remains Pakistan’s largest bilateral partner—accounting for 42% of total FDI commitments—the Gulf states are increasingly critical due to their role in energy security and remittances (which make up 8% of Pakistan’s GDP).

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Why Does This Review Matter for Pakistan’s Economy?

The DPM’s assessment comes at a pivotal juncture for Pakistan’s economic diplomacy. Three factors make this review particularly significant:

1. Fiscal Pressures: With foreign exchange reserves hovering around $7.2 billion (as of June 2024), diversifying trade partners is seen as essential to stabilize imports, particularly of oil and machinery.
2. Global Shifts: The reorientation of supply chains away from China toward “friend-shoring” presents both risks and opportunities for Pakistan to position itself as a regional hub.
3. Political Stability: The review aligns with Pakistan’s efforts to signal economic credibility to potential lenders, including the IMF and Saudi-led investment funds.

“This isn’t just about reviewing past agreements—it’s about recalibrating Pakistan’s economic diplomacy for a post-COVID, geopolitically fragmented world,” said Dr. Vaqar Ahmed, an economist at the Sustainable Development Policy Institute (SDPI). “The DPM’s findings will directly feed into the next IMF program negotiations, where trade and investment data will be scrutinized closely.”

Comparative Context: Unlike previous reviews, which often focused on macroeconomic indicators, this assessment places heavy emphasis on implementation gaps. For instance:

• Under CPEC, 72% of Phase I projects were completed on time, but Phase II—valued at $29 billion—faces delays due to land acquisition disputes and financing bottlenecks.
• Pakistan’s textile exports to the UAE surged by 22% in 2023, outpacing growth to China (12%), but local manufacturers cite inconsistent duty exemptions under the Pakistan-UAE FTA.

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What Challenges Remain in Bilateral Economic Cooperation?

Despite progress in some sectors, the DPM’s review identified five systemic challenges that could derail future cooperation:

1. Bureaucratic Delays: Approval processes for foreign investments average 45 days, compared to 15 days in Malaysia and 20 days in Vietnam, according to a 2023 BOI report.
2. Infrastructure Bottlenecks: Only 38% of CPEC’s planned transport links are operational, limiting trade connectivity between Karachi and Kashgar.
3. Currency Volatility: The Pakistani rupee’s 30% depreciation against the dollar since 2022 has made imports costlier, reducing competitiveness in Gulf markets.
4. Skill Gaps: Pakistan’s workforce lacks specialized training for high-value sectors like renewable energy and fintech, where demand from partners like Saudi Arabia and China is rising.
5. Geopolitical Risks: Tensions with India and regional instability in Afghanistan could disrupt supply chains, particularly for landlocked trade routes.

“The biggest risk isn’t a lack of agreements—it’s the inability to execute them,” said Maria Khan, CEO of the Pakistan Business Council. “Take the case of Gwadar Port: despite $2 billion in Saudi investments, the port’s operational capacity remains 50% below projections due to port congestion and customs inefficiencies.”

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How Are Partner Countries Responding?

Reactions from Pakistan’s key bilateral partners reflect a mix of optimism and caution:

• China: Officials from the Chinese Embassy in Islamabad confirmed that discussions are underway to fast-track $5 billion in pending CPEC loans, contingent on Pakistan addressing land acquisition delays. “We remain committed, but timelines must be realistic,” said a spokesperson.
• UAE: The Pakistani Ambassador to Abu Dhabi reported that UAE businesses are willing to invest in Pakistan’s special economic zones (SEZs), but only if tax incentives are extended beyond the current five-year moratorium.
• Saudi Arabia: While Saudi Arabia has pledged $10 billion in oil financing, sources indicate that Riyadh is pushing for deeper integration of Pakistan’s financial sector with the Saudi Riyal, a move that could ease trade but raise regulatory concerns.
• Malaysia: Malaysian firms have expressed frustration over visa processing delays, with some threatening to reroute investments to Bangladesh if conditions don’t improve.

“The Gulf countries are our most reliable partners, but they’re also our toughest critics when it comes to implementation,” said a senior trade diplomat. “They’re not just investors—they’re also our largest customers for energy and food imports, so their satisfaction directly impacts our balance of payments.”

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What’s Next for Pakistan’s Economic Diplomacy?

The DPM’s findings are expected to shape Pakistan’s economic strategy in three key ways:

1. Policy Reforms: A task force will be established to streamline investment approvals, with a target to reduce processing times to 21 days by December 2024. The SBP is also considering a trade finance guarantee scheme to reduce risks for exporters.
2. New Agreements: Negotiations are underway to expand FTAs with Turkey and Iran, which could unlock $3 billion in annual trade. Discussions with the EU on a Graduation Agreement (replacing GSP+) are also expected to resume.
3. Regional Integration: Pakistan will push for faster integration into the ECO and SAARC frameworks, focusing on harmonizing customs procedures and digital trade protocols.

Analysts predict that the DPM’s review will lead to a shift from quantity to quality in bilateral agreements. “Instead of signing more MOUs, Pakistan needs to focus on enforcing existing ones,” said Dr. Abid Qaiyum Suleri, former Finance Secretary. “The IMF and World Bank are watching closely—this review is as much about economic recovery as it is about restoring investor confidence.”

In the short term, watch for:

• A joint statement from the DPM and Chinese officials on CPEC Phase II timelines, likely by September 2024.
• Announcements on new SEZs in Punjab and Sindh, targeting Gulf and Chinese investors.
• Updates on oil pricing agreements with Saudi Arabia, which could ease Pakistan’s import bill.

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Key Questions and Answers

Q: How much foreign direct investment has Pakistan received under CPEC so far?

A: As of mid-2024, CPEC has attracted $28.4 billion in commitments, with $18.7 billion disbursed across energy, transport, and industrial projects. However, only 68% of Phase II commitments (worth $29 billion) have been finalized, with delays attributed to financing and regulatory hurdles.

Q: Which sectors are seeing the most growth in Pakistan’s bilateral trade?

A: Textiles (particularly to China and GCC), pharmaceuticals (exports to Malaysia and UAE), and IT services (outsourcing to Saudi Arabia and Turkey) are the top performers. Textile exports alone grew by 12% YoY in 2023, driven by demand from China and the UAE.

Q: What are the biggest obstacles to faster economic cooperation?

A: The DPM’s review highlights bureaucratic inefficiencies (45-day investment approvals), infrastructure gaps (only 38% of CPEC transport links operational), and currency volatility (30% depreciation since 2022) as the primary barriers. Partner countries also cite visa delays and inconsistent tax policies as major concerns.

Q: How might this review impact Pakistan’s IMF negotiations?

A: The IMF closely monitors trade and investment data as part of its macroeconomic stability assessments. The DPM’s findings—particularly on FDI disbursements and export growth—will be referenced in Pakistan’s next Staff Monitored Program (SMP) discussions, expected later this year. Stronger trade performance could improve Pakistan’s eligibility for debt relief.

Q: Are there any new bilateral agreements in the pipeline?

A: Yes. Pakistan is in advanced talks to expand FTAs with Turkey and Iran, which could add $3 billion in annual trade. Additionally, negotiations with the EU on a Graduation Agreement (replacing GSP+) are set to resume, potentially unlocking $500 million in preferential tariffs for Pakistani exporters.

Q: How does Pakistan’s bilateral trade compare to its neighbors?

A: Pakistan’s bilateral trade as a percentage of GDP (38% in 2023) lags behind Bangladesh (42%) and Vietnam (45%), but exceeds India’s 35%. However, Pakistan’s trade is more concentrated in raw materials and textiles, whereas neighbors like Bangladesh and Vietnam have diversified into apparel manufacturing and electronics.

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Pakistan’s economic future hinges on turning bilateral agreements into tangible growth. With the DPM’s review complete, the focus now shifts to execution—where past promises meet the realities of a global economy in flux.