Articles Asia Trade & Economics

Enhancing Collaboration Between Pakistan and the UK

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Economy, Pakistan, United Kingdom

Pakistan is a crucial strategic and regional ally of the United Kingdom (UK), with their relationship grounded in shared history and legacy. This partnership is further strengthened through regular high-level interactions and robust people-to-people contacts. The UK is Pakistan’s largest European partner in trade, investment, and development and a leading provider of development assistance. Despite leaving the European Union (EU), the UK maintains zero-tariff access for Pakistan’s exports through the Enhanced Trade Framework, the successor to the EU’s Generalized System of Preferences (GSP). The UK remains Pakistan’s largest European export market and third largest globally. Deep bilateral links are fostered by the 100,000 British and dual citizens living in Pakistan and the 1.6 million Pakistani diaspora in the UK. The UK’s national interest in the partnership with Pakistan was emphasised in the Integrated Review (IR) 2021, and the IR23 reaffirms the UK’s commitment to strengthening international collaborations. For over a decade, Pakistan and the UK have engaged in Enhanced Strategic Dialogue (ESD), deepening their trade, economic growth, development, cultural exchange, security, and education cooperation. Islamabad now seeks to elevate this relationship further, presenting a new scenario where opportunities and challenges for both countries are intertwined.

Since Brexit in 2020, bilateral relations between the UK and Pakistan have gained new momentum. The UK envisions a future where Pakistan is more secure and prosperous, less reliant on foreign aid, more resilient to shocks, and contributes to regional security. This vision is a testament to the UK’s belief in Pakistan’s potential and its commitment to its growth. Also, the UK aims to address security and criminal threats, making Pakistan a partner more aligned with the UK’s global geopolitical interests. Recently, Federal Interior Minister Mohsin Naqvi visited London’s key institutions, discussing enhanced cooperation in counter-terrorism, organised crime, cybersecurity, and drug trafficking. During his visit, he explored establishing a National Situation Centre (SitCen) in Pakistan with UK support.

This new phase of collaboration, rooted in shared goals and interests, has the potential to accelerate Pakistan’s development across key sectors and provide a beacon of hope for its beleaguered economic progress.

Bilateral relations have undergone a significant transformation, supporting the convergence of both government’s approaches. The UK is moving from conventional aid towards a more mutually beneficial partnership, aligning with Pakistan’s status as a lower middle-income nation and its growing importance as a trading and investment partner. This shift supports the emphasis placed by the Pakistani government on the economy and trade relations with the world, as outlined in the National Security Policy 2022-2026. This new phase of collaboration, rooted in shared goals and interests, has the potential to accelerate Pakistan’s development across key sectors and provide a beacon of hope for its beleaguered economic progress. This can be seen through the investment strategy opted by the UK government. The UK’s investment strategy in Pakistan has evolved to focus on strategic areas such as system strengthening, policy engagement, and catalytic technical support, moving away from large-scale delivery programs. The new investment strategy reflects the UK’s commitment to long-term, sustainable development in Pakistan.

Pakistan’s long-term development strategies—which emphasise human capital (health, education, gender equality), better governance and human rights, macroeconomic stability and trade, and climate resilience—are aligned with the UK’s assistance. Over the past decade, the UK has invested £900 million in reforming Pakistan’s education systems and promoting female education. Additionally, through public financial management support in the provinces of Punjab and Khyber Pakhtunkhwa and reforms in revenue mobilisation reforms, the Government of Pakistan has raised £1.1 billion with technical assistance. As a result, these provinces now allocate more than £1 billion to development, doubling their previous spending levels.

In light of the Bridgetown Agenda 2022, the UK government is assisting Pakistan in embracing a more resilient and environmentally sustainable growth path by mitigating the effects of biodiversity loss and climate change and preparing for future challenges. Through this Bridgetown Agenda, the UK leverages its significant global influence to advocate for reforms that will give Pakistan faster access to climate finance for adaptation and achieving the shift to net zero emission goals. This strategic support highlights the UK’s commitment to fostering strong trading and investment partnerships with Pakistan, promoting an inclusive, resilient and stable economy that benefits both nations. In 2023, the UK implemented the Developing Countries Trading Scheme, demonstrating the UK’s dedication to establishing enduring, mutually beneficial ties with Pakistan. Under this scheme, 94% of Pakistani exports are eligible for duty-free entry into the UK market. While Pakistan has faced dropped exports to the UK, exporters speculated Brexit as the reason for it. However, the UK reassured Pakistan of its commitment to facilitating easy access for Pakistani goods to the UK market.  Pakistan’s inclusion in the Preferential Market Access scheme exemplifies this commitment.

Table 1 below shows the total trade, imports, exports and trade balance between the two countries during FY2022 and FY2023. The figures are given in £billion.

Source: Department for Business & Trade, UK

The total value of trade in goods and services (imports plus exports) between Pakistan and the UK was £4.1 billion at the end of the fourth quarter of 2023, as shown in Table 1. This represents a 3.6% decline in current prices, or £152 million, over the four quarters to the end of Q4 2022. Despite furthering economic relations between both countries, geopolitics remains the dangling sword that will play a crucial factor moving forward. Notably, China is leading in development investment, particularly through initiatives like the China-Pakistan Economic Corridor (CPEC). The escalating rift between the United States (US) and China, exacerbated by the Taiwan crisis, can potentially jeopardise Pakistan and UK relations, given the UK’s principal alignment with the US as a key ally. Those indirect consequences could be in the form of trade protectionism from the UK. It is prudent for the UK government to consider a realistic appraisal of Beijing’s perspective rather than solely relying on what is accepted among the UK’s allies, particularly the US. This approach will contribute to further strengthening Pakistan-UK relations.

The current trend in trade and shift in the UK approach towards Pakistan is appreciable. However, there are important concerns that can eclipse bilateral relations. Pakistan should carefully navigate the geopolitical landscape, considering potential risks that could impact relations with the UK, such as the Taiwan crisis or growing dependence on China. This could be a serious challenge for Pakistan, as policy circles only talk about direct consequences in the case of the US-China standoff over Taiwan, but policymakers consider indirect impacts as well. A proactive foreign policy that establishes multiple communication channels can serve as a buffer for Pakistan, potentially mitigating or minimising damage in bilateral relations, particularly in scenarios involving competition among great powers.

Dr. Tauseef Javed

Tauseef Javed works at the Center for Strategic and Contemporary Research (CSCR) as a Senior Research Associate. He has completed his Ph.D. from Fujian Normal University in Fuzhou, China. His research focuses on US economic aid policy toward Pakistan, international relations, history, and area studies from an interdisciplinary perspective. He can be reached at tjsatti2018@gmail.com

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