Betting our economic future on the China-Pakistan Economic Corridor was always going to come with a certain amount of risk. The infrastructure development required for various projects required Pakistan to take on loans from China to import capital goods that would eventually have to be repaid. The only way we can afford to repay these loans and reduce our growing trade deficit is by increasing our overall exports. Naturally, we are now looking to China, with whom we have a large trade imbalance, to be more receptive to Pakistani exports. The two countries have now reportedly finalised the second phase of the China-Pakistan Free Trade Agreement, which is expected to be signed next month and provides Pakistan with the same tariff concessions which are given to Asean nations. Our aim is an immediate increase in exports, something the country desperately requires as an engine of economic growth. In the 10 years since the first free trade agreement between the two countries was signed, overall trade has ballooned from $4 billion to $13.7 billion. In that time, Pakistan’s imports from China have increased $2.5 billion to $12 billion while exports to China have only gone from $570 million to $1.7 billion. Our worldwide trade deficit stands at almost $18 billion for the six-month period from July to December and will almost certainly be higher than the annual target of $25.7 billion projected by the government.
Since such a large percentage of Pakistan’s trade deficit is caused by trade with China, the revised free trade agreement should help in improving that. The Pakistan Business Council has estimated that tariff concessions could increase the country’s exports to China by more than $3 billion a year, although a more accurate estimate will only be possible once the details of the agreement are made public. While that would be a good start, it is not sufficient to come close to eliminating our trade deficit. Pakistan does need to try and get whatever trade concessions it can – be it from China or other countries – but the entire rationale behind taking loans for CPEC projects is that it would put the country in a position to massively increase exports. Should that not materialise, there will be serious questions asked about why we have indebted ourselves to such an extent for economic gains that are marginal at best. With the international price of oil continuing to rise, there is little opportunity to reduce imports and so the only economic strategy that makes sense right now is to maximise exports