Pakistan’s Trade Deficit with SCO Countries Surges 41% in FY24: Key Insights

In a revealing trend for Pakistan’s economy, the trade deficit with nine member countries of the Shanghai Cooperation Organisation (SCO) escalated significantly in the fiscal year 2024 (FY24), reaching $11.703 billion. This marks a sharp increase of over 41% compared to $8.298 billion in FY23, as reported by the State Bank of Pakistan. The widening deficit underscores the complexities and challenges Pakistan faces in its trade relations with its regional partners.

Breakdown of the Trade Dynamics

The rise in the trade deficit is attributed mainly to a substantial increase in imports from key SCO members, particularly China, Russia, and India. Despite a notable increase in exports to these countries, the growth in imports has far outpaced it, creating a significant imbalance.

Exports to SCO Countries

Pakistan’s exports to the nine SCO nations—including China, India, Iran, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan, and Belarus—saw a commendable growth of 32.4% in FY24, totaling $3.076 billion, up from $2.323 billion the previous year. Notably, exports to China, which is Pakistan’s largest trading partner within the SCO, rose by 33.68%, reaching $2.707 billion. This increase signifies the deepening economic ties between the two nations, driven by initiatives like the China-Pakistan Economic Corridor (CPEC).

Imports Surge

In stark contrast, Pakistan’s imports from SCO countries surged by 39.14%, climbing to $14.779 billion in FY24 from $10.621 billion in FY23. A staggering 91.38% of these imports originated from China, which alone accounted for $13.506 billion—an increase of 39.78% from the previous year. This heavy reliance on Chinese imports raises concerns about the sustainability of Pakistan’s trade balance.

Imports from Russia also saw a notable increase, climbing by 36.58% to $1.011 billion. However, exports to Russia did not mirror this growth, as they fell by 10.89%, totaling just $78.91 million. This highlights a troubling trend where increased importation does not correspond with similar export growth, further aggravating the trade deficit.

Trade with India and Central Asia

Trade with India showed mixed results. Imports from India increased by 8.87%, amounting to $206.89 million, while exports to India surged dramatically to $3.669 million, a significant leap from just $0.329 million in FY23. This growth reflects an evolving economic relationship, albeit from a low base.

Among Central Asian states, Kazakhstan stood out with the highest growth in exports to Pakistan, which skyrocketed by 92.35% to reach $183.16 million. Conversely, imports from Kazakhstan saw a dramatic decline of 84.55%, indicating a possible shift in trade dynamics. Trade with Kyrgyzstan remained relatively stable, though imports from this country more than doubled, highlighting differing market trends within the region.

Challenges Ahead

The growing trade deficit with SCO countries paints a complex picture for Pakistan’s economy. While efforts are underway to strengthen economic ties with these nations, the imbalance poses significant challenges. The reliance on imports, particularly from China, raises concerns about the country’s long-term trade sustainability. Moreover, the inability to significantly boost exports, especially to Russia and India, suggests a need for more diversified trade strategies.

The trade dynamics within the SCO also reflect broader geopolitical trends. As Pakistan seeks to bolster its economic relationships with its neighbors, it must navigate the intricacies of regional politics and economic policies. The increase in imports from countries like China could lead to over-dependence, making Pakistan vulnerable to external economic shocks.

Opportunities for Growth

Despite the challenges, the rise in exports to SCO nations signifies potential growth areas for Pakistan. The 32.4% increase in exports indicates a demand for Pakistani goods, suggesting opportunities to enhance production capabilities and diversify export portfolios. The government could focus on sectors where Pakistan holds competitive advantages, such as textiles, agriculture, and technology.

Moreover, the SCO’s emphasis on regional cooperation could provide a platform for Pakistan to engage more effectively with member states. Collaborative initiatives in trade, investment, and infrastructure could help mitigate the trade deficit over time. Developing stronger economic ties with Central Asian nations, in particular, could open new markets for Pakistani goods.

Policy Recommendations

To address the widening trade deficit, Pakistan could consider several policy measures:

1. Diversification of Exports: Pakistan should aim to diversify its export base to reduce reliance on a few key markets. This could involve investing in new industries and improving the quality of existing products to meet international standards.
2. Enhanced Trade Agreements: Engaging in bilateral and multilateral trade agreements could facilitate easier access to markets in the region, promoting exports while ensuring fair trade practices.
3. Support for Local Industries: Strengthening local industries through government support, training, and subsidies could enhance production capabilities, allowing for a more robust export market.
4. Monitoring Import Patterns: The government should closely monitor import trends to identify areas where local production can be encouraged, reducing dependence on foreign goods.
5. Investment in Infrastructure: Improving infrastructure, particularly in transport and logistics, can facilitate smoother trade flows, helping to reduce costs and enhance competitiveness.

Conclusion

The sharp increase in Pakistan’s trade deficit with SCO countries underscores the challenges of balancing trade relationships while fostering economic growth. While there are significant hurdles to overcome, the potential for growth through enhanced exports and regional cooperation remains promising. By adopting strategic policies aimed at diversifying exports and strengthening local industries, Pakistan can work towards a more sustainable trade future. The road ahead is challenging, but with concerted efforts, it is possible to transform these challenges into opportunities for economic resilience and growth.