Pakistan-Bangladesh Economic Ties

Since July 22 when Prime Minister Imran Khan and his Bangladeshi counterpart Shaikh Hasina spoke by telephone, there have been growing calls for reconciliation between both countries as it is more than evident that political and economic compulsions appear to be taking both the leaders towards rapprochement. Despite an unfriendly political environment, trade has been considered one of the major factors raising hopes of a thaw in their otherwise frosty relationship. In fact, Bangladesh is the second top export destination of Pakistan in Asia after China and Afghanistan. Both the countries had a total trade of $700.39 million in 2019-20, wherein Pakistani exports amounted to $654.79 million and import from Bangladesh stood at $45.60million.

There’s a Mandela moment on the horizon between twins in the subcontinent. The two South Asian Muslim-majority nations, Pakistan and Bangladesh, are making efforts now to bridge the gap that spoilers had taken advantage of. Certain compelling developments in the region have provided windows of opportunities to both to bury an acrimonious past and seek rapprochement –this time cautiously, wittingly, competently and publicly. Therefore, as India’s relations with its neighbours in the South Asian region deteriorate, Pakistan and Bangladesh are making a push to build diplomatic, economic and cultural ties that could upend decades of historic arrangements in the region. Indeed, a number of recent diplomatic developments have hinted at a thaw in a long-troubled Pakistan-Bangladesh equation. For instance, on July 22, Prime Minister Imran Khan invited his Bangladeshi counterpart, Sheikh Hasina, to visit Islamabad in a rare phone call, which came just weeks after a “quiet” meeting between Pakistan’s high commissioner to Dhaka, Imran Ahmed Siddiqui, and Bangladeshi Foreign Minister A. K. Abdul Momen. According to Ambassador Siddiqui the aim of the huddle was “to further promote bilateral relations with a forward-looking approach” given a desire from both sides to strengthen ties, particularly through private-sector partnerships. “There is a huge potential in bilateral economic and commercial cooperation and the two sides may work together to realize this potential with a focus on bringing our respective private sectors closer,” he said.

Untapped Trade Potential in South Asia

South Asia is home to a fifth of mankind, and to almost half of the people living in poverty. It is sad that many South Asian countries are seen to prefer distant countries as trade partners to their close neighboring economies. Whereas, a 2018 study by the World Bank strongly argues that regional cooperation in South Asia can power the entire region to grow faster and improve standards of living. Using the gravity model approach, the report estimated that in 2015, the trade between Bangladesh and Pakistan has a potential to be valued at $ 1,376 million instead of $ 837 million and trade between the countries of South Asia to be valued at $67 billion instead of $23 billion.

The report aptly stated that the big gap between trade potential and actual trade in 2015 may be largely attributed to the gap in bilateral trade between Bangladesh and India and between India and Pakistan, three of the largest economies in the region. Hence it is important to state that a stronger regional cooperation for sustainable peace and prosperity can be achieved through the improvement of bi-lateral relationship and people-to-people exchanges. Within this context of regional cooperation, paying attention to geographical proximity and other socio-economic-cultural-religious factors, the importance of economic relation between the two most populous Muslim countries in South Asia-Pakistan and Bangladesh-cannot be overemphasized.

The rationale of enhancing bilateral trade

The rationale of enhancing bilateral trade with neighbouring countries can be explained by the unprecedented price hike of onion in Bangladesh in the year 2019. Though the current price of onion is Tk30 (USD 0.35) per kilogram in retail markets of Dhaka, onion prices shot up to Tk 300 (USD 3.54) in November 2019 due to a supply crunch after the Indian government banned the export of onions to Bangladesh in September that year.

To bring down the prices of onions and to keep it within the reach of common people, the Bangladesh government decided to import onions from a number of countries including China, Egypt, Myanmar, Pakistan, Singapore, Turkey, and Uzbekistan. An important lesson from the price hike of onion for Bangladesh is that depending solely on only one country (in case of Bangladesh, this is India) for importing any essential item of the common people is always a mistake and a risky business and enhancing bilateral economic relation with neighboring countries is must to curb the price of essentials. 

Potential of a Pakistan-Bangladesh FTA

It is very pertinent to ask, can enhancing Bangladesh-Pakistan trade relations be mutually beneficial for both nations?   

Currently, Bangladesh’s export to Pakistan is very small. According to latest data from the UN Comtrade, it was as small as $72 million in 2018, which is just 0.2 percent of her total exports. Bangladesh’s import from Pakistan is small as well. In 2018, imports from Pakistan were about $784 million, or just 1.30 percent of Bangladesh’s overall imports and from the Pakistan side, it is 3.3 percent of Pakistan’s overall exports. Thus, Bangladesh has become one of the top ten destinations for exports of Pakistan. For the last 3years, exports from Pakistan to Bangladesh have been increasing significantly. 

As of now, trade between the two countries is concentrated on a very few items. Textile fibers, paper yarn and woven fabrics of paper yarn accounts for over 60 percent of Bangladesh’s total exports to Pakistan. Other major export items are: tobacco, cotton, apparel and clothing accessories, inorganic chemicals, paper, plastics. As regards to imports, intermediate goods especially textiles and clothing constitute nearly 90 percent of Bangladesh’s imports from Pakistan. However, some new products have been introduced recently such as cement, raw material, onions, ladies’ suits, transport vehicles etc. Also, the imports of dates and chemicals have been increased in the year 2019.

From the preceding discussion, it is seen that the volume of trade between these two countries is very small. It is also worth noting that Bangladesh has always had a deficit trade balance with Pakistan. However, the recent rise of bilateral trade between the two countries indicates that the potentials of bilateral trade is fully unexplored yet. To enhance trade relationships, based on the opinion of experts, the business community and the general public, in a 2006 study by Dr. Ayubur Rahman Bhuyan, a former professor of economics at Dhaka University, has stated that Bangladesh should sign a bilateral Free Trade Agreement (FTA) with Pakistan despite this uneven trade balance because Bangladesh has little to lose but much to gain from the FTA.

In the context of Pakistan- Bangladesh economic tie, it is said that Pakistan’s eagerness for cooperation with Bangladesh is positive. The economic relationship between the two countries, which includes cooperation in South Asia, can surely go on. Cricketer turned politician Imran Khan certainly has a more popular image in Bangladesh in comparison to his predecessors and if his regime really wants stronger relations with Bangladesh based on common aspirations for regional peace, prosperity and development, the bilateral relations between the two countries can also eventually see a positive change in the years to come.

For this to happen, immediate priority for the government of both countries may be to study the feasibility of signing an FTA through holding frequent meetings and discussions between the experts and policy makers of both nations. It is strongly recommended that a meaningful economic tie between Pakistan and Bangladesh should be seen as part of strengthening economic cooperation in the South Asian Association for Regional Cooperation (SAARC) regionally and the Organisation of Islamic Cooperation (OIC) globally among Muslim counties. As long as Pakistan and Bangladesh are trading with each other, certainly a pragmatic approach would be trying to reach the utmost potential of this economic tie.

Conclusion

The reconciliation process between the two countries, indubitably, is a welcome step. There is a dire need for policy shifts by both governments to resolve the old issues in an expeditious manner to meet new challenges posed by the world order. Both governments should formulate a policy plan to overcome the economic conditions in the way of people-to-people contacts. If they can forget about the past for a better future, both governments of Bangladesh and Pakistan may come together to show the world that we were together, are together and will be together.