Trading across borders

With the economy in difficult straits and its spokespersons desperate, the tendency to keep catching at a straw continues. Instead of the December deficit in the current account bringing the surplus celebrators to their senses, there is more to rejoice. An FBR presser claims that its new initiatives have improved Pakistan’s standing on the Trading Across Border Index from 142^nd to 111^th. The index is a subset of the Doing Business index of the World Bank. Essentially, it measures the time and cost of documentary compliance, border compliance and domestic transport. The data relates to May 2019. The presser also notes that border facilitation is amongst the top priority areas of the comprehensive trade framework of the government.

This is as far as it goes, given our increasingly restrictive borders. As a result of the constraints behind the borders, trade with neighbours is well below the potential, and declining. The largest trade volume is with China, but with a massive imbalance. In FY20, exports were $1.7 billion against the imports of $12.1 billion. This is a special case as a large bulk of the imports are related to CPEC investments. As major projects near completion, imports have begun to decline. In FY19, imports were of the order of $15.7 billion. A worrying thing is that exports were still around $1.7 billion. As opposed to friendly China is the unfriendly India. In this special case, Pakistan’s exports in FY20 were $8 million and imports were $380 million. A third special case is Iran. The US sanctions and the Arab influence have led to negligible exports and imports of $438 million in FY20.

Afghanistan is, however, the most interesting case. Neither friend nor foe, but the trade relationship is again nothing to write home about. In FY20, exports to Afghanistan stood at $855 million and imports were $473 million. Exports were $1.5 only two years ago and $2.1 billion in 2013. In the peak years of the War on Terror, the exports to Afghanistan increased from a mere $168 million in FY02 to $1.06 billion by FY06. It became the third largest export destination after the US and UAE and maintained this position until FY10. In FY11, with exports peaking to $2.3 billion, Afghanistan became the second largest export destination by displacing UAE. Throughout, imports were an insignificant proportion of the exports. How is it then that exports have recently fallen to less than a billion dollars from over $2 billion in earlier years? Afghanistan’s exports to Pakistan, from an insignificant start, are now 55% of Pakistan’s exports to that country. This is the state of affairs when Afghanistan is rid with conflict. Once the country finds peace, tables might turn against Pakistan. Iran and India have already gained stronger footprints in Afghanistan. Iran, indeed, has already replaced Pakistan as the major source of imports into Afghanistan.

Improvement in the Trading Across Border Index is fine. But there is more to constraints behind the border. Closure of borders at the drop of a hat is one. Informal controls at the borders is another. The recent optimism expressed at the bilateral review of the Afghan-Pakistan Transit Trade Agreement died down the moment the Afghan delegation crossed Torkham. The thorny issue of allowing Afghanistan its most economical land route to imports from India is becoming thornier. If fencing of borders fences minds as well, the free or freer flow of trade is not likely to follow. Bangladesh stands at the bottom of the index with a rank of 176, but it trades several times more than Pakistan across its borders.

Published in The Express Tribune, January 22^nd, 2021.

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