Pakistan - International trade

The external sector was seriously affected by the economic sanctions imposed on Pakistan after it conducted nuclear tests in May 1998. The lack of foreign investor confidence following the freeze on foreign currency deposits led to a decline in foreign private capital inflows and a sharp decline in money sent home from citizens working abroad, or so called "workers' remittances ." The level of foreign direct investment declined by 32.1 percent per year to a low of US$296 million in 1998-99, according to official data. Remittances from Pakistanis abroad, most of them in the Gulf, the United Kingdom, and North America, peaked at US$2.89 billion in 1982-83, but fell to under US$1.5 billion in 1998-99. These adverse developments, along with suspension of new economic assistance by major donors, pushed Pakistan's foreign exchange reserves down from US$1,533 million at the end of April 1998 to US$415 million (the lowest level reached during the crisis) by 12 November 1998, hardly sufficient to finance 2-3 weeks worth of imports.

Disappointing foreign sales performances have given Pakistan a trade deficit every year since 1972-73. This is partly due to the narrow range of export products. Five categories of goods—cotton yarn, garments, cotton cloth, raw cotton, and rice—still account for over 60 percent of export earnings. A second major reason is the vulnerability of key products, notably cotton, to droughts, floods, and pestilence. However, there are other reasons for the poor performance, including the small proportion of high value-added goods in the sales mix, low product quality, and poor marketing.

Trade (expressed in billions of US$): Pakistan
Exports Imports
1975 1.054 2.161
1980 2.623 5.359
1985 2.744 5.900
1990 5.598 7.388
1995 8.005 11.480
1998 8.501 9.315
SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.

The United States has long been Pakistan's largest export market, absorbing over 21 percent of total sales in 1999-2000. The United Kingdom, Hong Kong, and Germany have also been major outlets. In recent years, Japan and the United States have alternated as Pakistan's top supplier, although Gulf countries took a bigger share in 1999-2000, reflecting the sharp increase in the cost of oil imports. In 1999, Pakistan exported goods worth US$8.4 billion; it imported goods in the value of US$9.8 billion, creating a trade deficit of US$1.4 billion. Pakistan's main exports are cotton, fabrics, yarn, rice, and other agricultural products, most of which go to the United States (21 percent), Hong Kong (7 percent), the United Kingdom (7 percent), Germany (7 percent), and the United Arab Emirates (5 percent). Imports are mainly machinery, oil and oil-related products, chemicals, transportation equipment, grains, pulses, and flour. They come mainly from the United States (8 percent), Japan (8 percent), Malaysia (7 percent), Saudi Arabia (7 percent), and the United Arab Emirates (7 percent). Exports of goods and services represent roughly 15 to 16 percent of GDP, and imports equal around 18 percent of GDP.

Pakistan is a member of the World Trade Organization (WTO). Though not a member of any regional free trade arrangement, the country is party to 2 arrangements which are progressing toward regional trade liberalization. The Economic Cooperation Organization (ECO), whose founding members are Pakistan, Turkey, and Iran, grants a 10 percent tariff preference on several goods. ECO membership was expanded to 10 in 1993, when Afghanistan, Azerbaijan, and the 5 former Soviet Muslim republics of central Asia were admitted. The second arrangement, the South Asian Association for Regional Cooperation (SAARC), is comprised of India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives. Because of competition in key export sectors such as textiles among the larger member states, this association is not expected to stimulate regional trade flows. Pakistan's leading regional trading partners are Bangladesh (its former eastern part), India, and Sri Lanka. Pakistan is also a member (along with India and Nepal) of the Asian Clearing Union, which was founded in 1976 and aims to facilitate multilateral payments through the use of currencies of participating countries in regional transactions in order to expand intra-regional trade and save convertible foreign exchange.

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