A Diplomatic Shift with Pakistan: Risks for Bangladesh
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Synopsis
The postponement of Pakistan's Deputy PM Ishaq Dar's visit to Bangladesh highlights the challenges in resetting diplomatic relations, which may yield limited economic benefits due to Pakistan's ongoing economic instability and the geopolitical implications for Bangladesh's ties with India.
Key Takeaways
- Pakistan's economic fragility limits bilateral gains.
- Trade imbalance favors Pakistan, hindering Bangladesh's exports.
- Geopolitical risks arise from warming ties with Pakistan.
- Bangladesh's garment sector relies more on Western markets.
- Closer ties may divert resources from lucrative partnerships.
New Delhi: Unforeseen circumstances have compelled Pakistan's Deputy Prime Minister and Foreign Minister Ishaq Dar to delay his visit to Bangladesh, originally scheduled for April 27-28, thereby deferring the significant foreign ministerial-level meeting between the two nations for the first time in 13 years.
The two nations had arranged to formalize several Memorandums of Understanding (MoUs) during this meeting. Prior to this, Pakistan's Foreign Secretary Amna Baloch visited Dhaka on April 17 to finalize the details for Dar's visit.
While this diplomatic outreach seeks to mend historically strained relations, Bangladesh may find itself engaging with a partner whose economic instability limits the prospects for meaningful bilateral benefits. Pakistan's economy is plagued by persistent issues such as chronic debt, insufficient investment, and a reliance on consumption-driven growth.
The anticipated diplomatic reset between Bangladesh and Pakistan encounters substantial structural challenges for various reasons.
Bilateral trade currently stands at approximately USD $782 million, heavily skewed in favor of Pakistan, as Bangladesh's exports—primarily jute and pharmaceuticals—struggle to find demand owing to import restrictions imposed by Pakistan. These include non-tariff barriers and anti-dumping duties on certain Bangladeshi products like hydrogen peroxide. In contrast, Pakistan's exports to Bangladesh are significantly higher, predominantly consisting of cotton textiles and yarn, highlighting a persistent trade imbalance.
This imbalance is further aggravated by Bangladesh's dependence on more lucrative Western markets for its key export sectors, such as Ready-Made Garments (RMG), rather than on Pakistan's relatively modest and import-restricted market. Although Pakistan's foreign exchange reserves have seen some improvement, they still barely suffice for a few weeks of imports during the ongoing economic crisis, limiting its capacity to absorb significant Bangladeshi goods. Despite attempts to revitalize trade relations through initiatives like the Pakistan–Bangladesh Joint Business Council, political dynamics and structural trade barriers continue to hinder Bangladesh's export potential to Pakistan.
Moreover, strengthening ties with Pakistan carries geopolitical risks for Bangladesh, potentially straining its relationship with India, its largest regional trading partner, without providing adequate compensatory economic benefits.
India and Bangladesh maintain a robust trade partnership valued at around USD $13 billion for the 2023-2024 financial year, with India holding a significant trade surplus of USD $9.2 billion. Notable Indian exports to Bangladesh include textiles, refined petroleum, machinery, and electricity, rendering India a crucial supplier for Bangladesh's economy, particularly its garment sector. Any warming of Bangladesh-Pakistan relations could jeopardize this vital economic collaboration, especially since India has demonstrated sensitivity to shifts in Bangladesh's foreign policy stance. Thus, even though high-level discussions have resumed after a 15-year hiatus with agreements aimed at enhancing trade, the economic realities and geopolitical intricacies imply that this reset may be more of a diplomatic gesture than a genuine economic breakthrough.
Pakistan's economic decline over the last 50 years has been stark. Once regarded as South Asia's wealthiest nation in terms of per capita income, it now lags behind Bangladesh, India, and Sri Lanka. Pakistan grapples with several interconnected economic challenges. A significant portion of government revenue—nearly two-thirds—is consumed by interest payments, severely constraining fiscal space for development initiatives. Economic growth remains tepid, with GDP projected to rise by only 2.5 percent in FY-2025, falling short of Bangladesh's average growth rate of 5–6 percent. This underperformance is evident in Pakistan's industrial sector, which contributes merely 19 percent to GDP compared to Bangladesh's 29 percent. Furthermore, inflation has been highly volatile, peaking at 38 percent in 2023 before recently easing to 0.7 percent, a fluctuation that has diminished purchasing power and deterred foreign investment.
In light of these factors, Bangladesh stands to gain little from closer economic ties with Pakistan due to several fundamental issues. The nation's USD $55 billion ready-made garment sector, which is a primary driver of its export revenue, predominantly relies on Western markets such as the US and Europe, rather than on Pakistan's small and shrinking consumer base. This heavy dependence on Western buyers limits the potential benefits of expanding trade with Pakistan. Additionally, emphasizing relations with Pakistan, which is burdened by substantial debt and economic challenges, risks diverting Bangladesh's attention and resources away from more lucrative partnerships with dynamic regions like Southeast Asia and the Gulf.
Moreover, the limited economic complementarity between the two countries poses a challenge: Pakistan's economy is mainly driven by low-value agriculture and stagnant industrial sectors, offering little synergy with Bangladesh's manufacturing-driven growth model. Consequently, the opportunity costs and structural mismatches suggest that closer economic engagement with Pakistan is unlikely to yield significant advantages for Bangladesh’s export-oriented economy.
While cultural and military exchanges might deliver soft-power dividends, Bangladesh should approach economic collaboration with caution. Pakistan's recurring balance-of-payments crises and protectionist tendencies render it an unreliable partner. For Dhaka, the success of this reset depends on Pakistan undertaking structural reforms—reducing debt, increasing exports, and stabilizing macroeconomic policy—which appear unlikely in the near future.
In its current condition, Pakistan's economy cannot serve as a growth catalyst for Bangladesh. Dhaka would be better served by strengthening ties with economically robust partners while advocating for regional stability through a non-aligned engagement strategy.
(The author is an expert on South Asia and Eurasia. He previously worked with the Manohar Parrikar Institute for Defence Studies and Analyses. The views expressed are personal.)
