Red Sea disruption poses economic threat to Pakistan
Published on: June 13, 2024.
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The recent disturbances in the Red Sea, a critical route for maritime trade, have significant implications for Pakistan’s trade and overall economy, as highlighted in the Economic Survey of Pakistan 2023-24.
Pakistan heavily relies on maritime routes for over 90 percent of its trade volume, making any disruptions a major threat to its economic stability.
For years, the Red Sea has been the most direct and efficient trade route between Asia and Europe. However, recent disruptions have forced ships to take a longer route around the Cape of Good Hope, adding over 3500 nautical miles and 10 to 12 days of sailing time. This substantial increase in travel distance has led to inflated freight costs, further straining Pakistan’s economy.
Pakistan’s dependence on the Red Sea route is evident in its trade statistics. In FY 2023, approximately 60 percent of Pakistan’s exports, valued at USD 16.3 billion, and 30 percent of its imports, valued at USD 23.2 billion, were from the United States, European Union, and the United Kingdom. The repercussions of disruptions in this vital trade route are multidimensional, affecting the timely arrival of essential goods, including raw materials and finished products, thus disrupting domestic supply chains.
The delay in the supply of imported raw materials has aggravated production slowdowns, particularly impacting the Large-Scale Manufacturing (LSM) sector. The increase in freight charges poses a significant threat to Pakistan’s major export commodities, such as textiles, rice, and fruits. The textile sector, which accounts for approximately 60 percent of Pakistan’s total exports, is especially vulnerable. Timely availability of raw materials and machinery imports is crucial for textile and apparel producers. Shipping schedule disruptions result in production delays and increased costs.
For example, in mid-January, shipping companies raised freight charges by 140 percent, soaring from USD 750 to around USD 1800. This steep increase affects exporters and undermines the competitiveness of Pakistani products in international markets. Moreover, escalating tensions in the Red Sea have caused a decline in demand for Pakistani rice from traditional buyers in the Middle East, the United States, and Europe.
The complexity of the Red Sea disruption highlights the severity of its repercussions for Pakistan’s economy. Prolonged disruptions will continue to hinder supply chains and potentially impede efforts to control inflation. It is crucial for the government to address these challenges by exploring alternative trade routes and seeking international support to mitigate the impact of these disruptions on the nation’s economy.
Source: PkRevenue.com
