In today’s globalized world, the shift from geopolitics to geo-economics is glaring, underscoring the primacy of free trade and regional economic integration. Pakistan, strategically positioned at the crossroads of South Asia and Central Asia, emerges as a pivotal player in regional geopolitics and geo-economics. The country’s inaugural National Security Policy (NSP) in January 2021 marked a significant transition, prioritizing economic diplomacy in foreign policy to steer clear of bloc politics. The NSP adopts a holistic security approach, encompassing economic and human dimensions alongside military security, with a central focus on leveraging Pakistan’s strategic location and resources to drive economic growth and ensure stability. Strategically, Pakistan finds itself surrounded by economic powerhouses and regions ripe with economic potential. To the north, China stands as the world’s second-largest economy and largest trading nation, offering substantial economic opportunities and strategic partnerships. In the east, India, a rapidly growing emerging economy, presents prospects for trade and regional collaboration. Pakistan’s crucial role as a vital link for Afghanistan’s trade routes is highlighted by landlocked Afghanistan’s reliance on Pakistan for its overseas trade. Moreover, the energy-rich Central Asia beyond Afghanistan underscores new prospects of cooperation and trade. To the southwest, Iran serves as a vital link connecting Pakistan to the oil and gas-rich Middle East, thereby enhancing Pakistan’s energy security. Additionally, the Arabian Sea to the south, part of the Indian Ocean, serves as a key trade route, further accentuating Pakistan’s pivotal position in global trade and commerce.
Challenges in road to Geo-economics
Pakistan’s ability to achieve these objectives relies on its ability to maintain stable relations with all its neighbors, including India and Afghanistan, and establish itself as a hub for trade. However, the border dispute with Afghanistan, and Afghan Taliban’s reluctance to accept the Durand line as an international border and provision of sanctuary to terrorist organizations, the longstanding unresolved Kashmir dispute with India, and the presence of the Modi government, which often exploits belligerence against Pakistan to secure its government, as well as issues with Iran, have created challenges for Pakistan in achieving this.
Furthermore, Pakistan’s foreign policy is challenged by the need to navigate the confrontation between the US and China while avoiding entanglement in their rivalry. China-Pakistan Economic Corridor has resulted in a flow of investment from China to Pakistan and strategically linked Pakistan with other regions. It has diminished the strategic importance of Pakistan in the eyes of the USA. For nearly two decades, Afghanistan was the focal point of US-Pakistan relations, characterized by a lack of bilateral content and marked by both cooperation and mistrust. Now, with the US prioritizing the containment of China, the challenge for Pakistan is to redefine its relationship with the US. According to the Stockholm International Peace Research Institute, although the United States has provided Pakistan with more than $3 billion in arms since 9/11, those transfers have dropped significantly since 2016. Furthermore, USA has been a source of FDI for Pakistan and biggest export market, a global power with significant influence, especially over international financial institutions namely IMF, whose assistance Pakistan’s crisis-prone economy constantly needs.
Additionally, Pakistan’s policymakers have consistently prioritized a system that lacks socio-economic development, putting the interests of the elite over those of the common people and maintaining a social system that doesn’t collide with the financial interests of business and industrial elite. Moreover, economic policies regarding taxation, subsidies, exports, and resource allocation have sometimes been detrimental, contributing to a stagnating economy. With sectors like technology, education, and employment suffering, Pakistan’s socio-economic development has been hindered. The lack of investment in these crucial areas, has exacerbated the country’s economic challenges.
Pakistan’s dependence on external factors has further diminished its value in geo-economics. This dependent economy has led to declining foreign reserves and increasing debt accumulation. For instance, Pakistan’s external debt reached 131.2 USD billion in December 2023, compared to 129.7 USD billion in the previous quarter. On the other hand, the Current Account recorded a surplus of 198.0 USD million in December 2023. However, Foreign Direct Investment (FDI) fell by 173.2 USD million in January 2024. Its domestic debt has increased six-fold in nominal terms to $146.4 billion since 2011. Additionally, debt accumulation has been overwhelmingly used to continue fostering a consumption-focused, import-addicted economy, without investment in productive sectors or industry. For instance, Pakistan’s reliance on expensive imported fuels for producing electricity is incredibly high, and its transition to renewables and domestic fuels is very slow. Moreover, we are heavily reliant on imports for 70 percent of our oil requirements.
Policy Options for Pakistan:
To make its foreign policy more geo-economics dependent, Pakistan will need to implement various reforms and policies. While, Pakistan has three hot borders with our neighbors, it should resolve the border disputes with neighbors diplomatically. Communication channels should remain open, and Pakistan should ask Afghanistan to take action against verified terrorist sanctuaries across the border. Moreover, China, which offers a financial lifeline to the Kabul regime, can also be asked to take punitive measures if the Taliban refuse to crack down on militants on their soil.
Pakistan faces a challenging situation in its foreign policy towards India. India’s reluctance to negotiate or reverse its decision on Article 370 and 35A of its Constitution, along with its expectation for Pakistan to take the first step in resuming trade, has resulted in a deadlock. Pakistan’s foreign policy must navigate this impasse while maintaining its principled stance on Kashmir. Resuming trade with India could offer mutual benefits without compromising Pakistan’s position on Kashmir. As Mirwaiz Umar Farooq aptly put it, in conflicts between giants, it’s the grassroots that suffer, and in this case, that grassroot is Kashmir. Pakistan’s disengagement with India only perpetuates the status quo, hindering any hopes of resolving the Kashmir dispute.
Strengthening bilateral relations with Iran by working together on economic and security reforms is also important. Recently, Pakistan decided to resume construction work on the Iran-Pakistan pipeline, which will prove to be a great move for its foreign policy and economic development. Pakistan needs regular and affordable access to natural gas, as local supplies are insufficient to meet demand, leading to gas load-shedding in domestic and industrial sectors, especially during winter. Importing Iranian gas would be a sensible economic decision, despite geopolitical concerns causing delays. For example, both China and India have continued to import Russian oil despite Western sanctions on Russia. Furthermore, Pakistan should seek to enhance relations with Central Asian states to help fulfill its energy needs.
Ensuring the security of foreign workers and investors is a major challenge for Pakistan and is crucial for its transition to a geo-economics focused approach. Pakistan needs to work on curbing rising extremism and terrorism within the country. For example, incidents like the mob burning of a Sri Lankan citizen and attacks on women for wearing dresses with Arabic writing, on charges of blasphemy, have attracted international criticism. Such incidents can stymie foreign investment and impede economic growth.
Every country facing security challenges, like Pakistan, has established an NSC (National Security Council), a platform that encourages collective decision-making by civilian and military leadership on security matters. National security is now defined as a tripod of traditional security threats, economic security, and human security. However, it hasn’t taken root in Pakistan because the civilian government always fears that it will give greater power to the military, undermining the mandate of the elected government. The counterargument is that an NSC chaired by the Prime Minister and his cabinet, involving military leadership, provides a platform to address misunderstandings. With Pakistan already facing border issues with its neighbors from east to west, and terrorism resurfacing, there should be consensus to address these issues.
Ensuring efficient and effective economic governance is indeed a critical challenge for Pakistan. It’s crucial to move away from outdated administrative practices and embrace specialized knowledge and skills in economic management. The Economists and Planners Group can play a key role in this regard, given their expertise in economic matters. Diversifying the leadership in economic management beyond the Pakistan Administrative Service (PAS) officials, whose core competence lies elsewhere, could lead to more informed and strategic decision-making. Additionally, there is a need to curtail imports, boost exports, expand the tax network, and reduce tariffs on raw materials. Furthermore, civil reforms are needed to promote meritocracy and accountability. This shift could help address the complex economic challenges Pakistan faces and pave the way for more sustainable development.
Author
Written by: Qirat Mirza, currently pursuing Bachelor’s degree in International Relations from International Islamic University Islamabad and an intern at Kashmir Institute of International Relations. Additionally, I am also a writer at Modern Diplomacy, International Affairs Forum, Pakistan Today, Policy East, South Asia Journal and Pakistan Observer.
