In the last quarter 2019, the government announcement on Pak-China Free-Trade Agreement (FTA) stated that effective January 1, 2020, the new FTA will allow Pakistan a duty-free access to the Chinese market for many textile and apparel categories, including cotton yarns, woven & knitted garments, and home textiles. Chinese imports in these categories are around $10.20 billion while Pakistan’s share is only $892 million. In contrast in the same categories, Vietnam annually exports $3 billion to China and India $1.5 billion. The new facility will give Pakistan’s exports in these categories an edge, since China’s import duty for us (under the news FTA) will be zero percent, whereas, it will be between 3 to 7.80 percent for Indian goods—Vietnam also enjoys zero-duty access. Now fast forward this to the last quarter 2020 (one year) and Pakistani exports to China in August 2020 have in fact dropped to $94 million, as compared to $98 million in 2019, with USA and UK continuing to be our two largest (country) markets: $342 million to the USA in August 2020 and $130 to the UK in August 2020. Apparently, things have not gone as planned with the new Pak-China FTA, but then this is hardly surprising. It is extremely difficult to beat China at the trade game, as the United States recently found out after Trump pushed his country into a trade war (outright embargoes, higher tariffs, changed entry rules, etc.) with China, ironically its largest trading partner. Four years down the road, both Chinese trade figures and surplus with the US have instead grown.

However, for Pakistan such reverses are not sustainable. Laden with chronic external account challenges, the country needs exports and especially from friendly markets such as that of China. According to the Pakistan Bureau of Statistics, the country’s exports tumbled by around 15 percent in the month of August 2020 year-on-year to $1.58 billion compared to $1.86 billion in the corresponding month of last year. Clearly there is a problem. With the markets of traditional trade, friends like the US and EU contracting due to the COVID-19 pandemic, we need support and market access from our all-weather friend China where its domestic consumption in contrast showed an unprecedented growth of almost 53 percent month-on-month in August 2020 compared to the corresponding month of last year. Pakistan not only needs a larger window in Chinese imports, but also needs a share of this Chinese consumption growth. The external account problem does not just stop at the worrisome trend of dwindling exports, but could face a double whammy in the shape of a high number of Pakistani workers returning home since March 2020—naturally over time, this is bound to adversely affect our home remittances, a figure that by now is almost as significant as the national exports.

As if this was not enough to think about, the time from March 2020 may have just flown by a bit too quickly for the government’s liking. Its economic managers made its 2020-21 budget on the assumption that the economy would fully recover from the impact of the coronavirus pandemic by October 1, 2020, which owing to the second wave of the pandemic—now nearly all around the globe—has not been possible. Primarily, the ambitious tax collection target of the Federal Bureau of Revenue (FBR) at Rs4.963 trillion was at the time prepared on this premise. Now with the effects of the pandemic still looming large in the shape of an economic slowdown resulting in large scale unemployment and a spike in poverty, ambitious and coercive taxation drives will simply be counterproductive. The more the state endeavours to suck capital from the markets and investors, the more it will get dragged into a vicious cycle of economic erosion. What it needs to realise is that the fallouts from the pandemic are still very much a reality and at present, ongoing. For now, the time still calls for providing a stimulus to the economy and for bringing ease in doing business more than ever before. It will do well by honestly revisiting and implementing some of its very laudable budgetary proposals that look to tangibly support small and medium size enterprises, address manufacturing concerns to arrest the current process of deindustrialisation in the country, tackle supply-side challenges to contain inflation, renegotiate trade deals by taking private sector stakeholders on board, not to undertake any coercive or ambitious taxation drives that unnerve the investors and scare away capital, and last but least, to unleash a monetary policy that is pro-growth and pro-investment. Unless investment and consumption returns, unemployment will keep pushing up, in the process heaping misery on low to medium income families.