Afghanistan’s endgame: economic implications for Pakistan
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For some time now, Islamabad has been estimating the costs of possibly dealing with a large influx of Afghan refugees. According to recent news reports, the government expects around a million individuals may be affected out of which 700,000 could enter Pakistan. A recent presentation to the Cabinet puts the expense of dealing with this situation at over $2 billion for a two to three year period which may not be possible to cover for Pakistan from internal resources and could result in Islamabad sending requests to development partners.
But refugee related expenses are not the only costs in this endgame. The real casualties will be the trade, investment, and cultural linkages at a bilateral and regional level. Fragility in the region could give rise to informal and illicit trading activities which will have their own longer-term implications for formal businesses and job creation in the region. Contraband detection and control which has been strengthened in view of directives from the Financial Action Taskforce (FATF) will also come under stress and could further delay Pakistan’s exit from the grey list.
While COVID-19 and temporary trade restrictions thereafter have resulted in a decline in bilateral trade volumes, still there are over a billion dollars of exports that go from Pakistan to Afghanistan. Studies have put the potential trade between the two neighbors above $5 billion per annum. Major sectors or commodities that have benefited over the years include cement, iron, steel, dairy, wheat, rice, sugar, furniture, plastics and various items supplied by the fast moving consumer goods segment in Pakistan. More recently, Islamabad had plans (which are still in place) to lower tariffs on imports of 153 items from Afghanistan which could have further strengthened economic interdependences in the region and acted as a confidence building measure.
Apart from bilateral trade, Pakistani government and operators in transport, warehousing and distribution sector also earn revenues from providing transit services to Afghan bound merchandise. This quantum declines as economic activities in Afghanistan slow down. A 2016 study by Sustainable Development Policy Institute had shown that most of the jobs created as a result of the transit trade with Afghanistan went to the poorest income segments of Khyber Pakhtunkhwa and Balochistan provinces, ultimately not only resulting in income gains but also helping to pull these households out of severe poverty.
While COVID-19 and temporary trade restrictions thereafter have resulted in a decline in bilateral trade volumes, still there are over a billion dollars of exports that go from Pakistan to Afghanistan.
Dr. Vaqar Ahmed
Countries in the region most notably Kyrgyz Republic, Tajikistan, and Uzbekistan were just starting to envisage their own plans on how to gain from a revised Afghanistan Pakistan Transit Trade Agreement whose draft was recently shared between the commerce ministries of both countries. The Central Asian Republics (CARs) have been encouraged by China since 2014 to build linkages with Gwadar and Karachi ports which eventually could help overcome shortages in food and raw material supplies in some of these economies.
More recently, Pakistan and Uzbekistan signed a transit trade agreement as part of the ‘Silk Route Reconnect Policy’ aimed at enhancing economic and trade integration with the CARs. Islamabad was expecting to provide for the Uzbek market, having export potential nearing $90 billion. In May this year, Pakistan and Uzbekistan even exchanged merchandise which passed through some of the toughest parts of Afghanistan for the first time. Pharmaceutical items from Karachi were exported to Tashkent via Kabul and an Uzbek truck carried leather items from Tashkent to Faisalabad via Pakistan’s border city of Torkhum. This success was to be followed by further trials to check viability of multiple routes through Afghanistan which in turn could have vastly benefited the war-torn areas.
While the future prospects of above-mentioned developments have become hazy now, Pakistani policymakers need to be mindful about three key issues. To help Afghanistan’s government and Afghan people in these times, the Pakistani state should not enter into another stint of a merely transactional relationship with the west (as seen during the 1980’s and later in the 2000’s).
Second, connect with the people of Afghanistan at a deeper level this time. Try neutralizing the anti-Pakistan sentiment in Kabul through measures which are tangible and touch the hearts and minds of Afghans, particularly the youth population.
Finally, while pursuing all of the above, keep in mind that this may still not be the endgame in Afghanistan. It could easily be another déjà vu experience which could leave Pakistan burdened with all the social costs which the country has experienced since the 1980’s. As Pakistan reels out of past experiences of militancy and select instances of insurgency, it will be impossible to afford another round of such episodes at a juncture where demographic dividends and its potential advantages are there to be harnessed.
- Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed
