Global Rice News

12 Jun, 2024

Prolonged Disruptions in Red Sea Threaten Pakistan’s Trade and Economy

The Government of Pakistan has raised concerns over the prolonged disruptions in the Red Sea, which are expected to have severe consequences for the country’s trade and overall economy. These disruptions include a massive increase in shipping charges, which may potentially stall efforts to contain inflation.

According to the Economic Survey 2023-24, global merchandise trade showed notable resilience in the fourth quarter of 2023, with a significant surge of 6.3 percent compared to pre-pandemic levels in the third quarter of 2019. However, the overall performance of global merchandise trade in 2023 remained subdued, experiencing a 5 percent decline to $24.01 trillion.

Several countries witnessed a decline in exports in 2023, including Russia (28 percent), China (5 percent), Japan (4 percent), Korea (8 percent), and the US (2 percent). On the other hand, Germany (1 percent), Mexico (3 percent), and the European Union (2 percent) saw an increase in exports. The decline in merchandise exports was attributed to lower commodity prices, reduced trade volumes, and exchange rate fluctuations.

The disruption in the Red Sea, a critical trade route, poses severe consequences for Pakistan’s trade and economy. The Red Sea has historically been the shortest and most efficient trade pathway between Asia and Europe. Rerouting trade around the Cape of Good Hope extends the journey by over 3500 nautical miles and adds 10-12 days of sailing time, significantly inflating freight costs. Pakistan heavily relies on the Red Sea route for its trade, with approximately 60 percent of its exports valued at US $16.3 billion and 30 percent of its imports valued at $23.2 billion passing through this route during FY 2023.

The disruptions in the Red Sea have multifaceted repercussions. Delayed arrivals of essential goods, including raw materials and finished products, disrupt domestic supply chains, leading to production slowdowns. This has particularly affected the Large Scale Manufacturing (LSM) sector. Furthermore, the escalating freight charges pose a significant threat to Pakistan’s major export commodities, such as textiles, rice, and fruits.

The textile sector, which accounts for around 60 percent of Pakistan’s total exports, is under immense pressure. Timely availability of raw materials and machinery imports is crucial for textile and apparel producers. Any disruptions in shipping schedules result in production delays and increased costs. For example, shipping companies recently hiked freight charges by 140 percent, impacting exporters and affecting the competitiveness of Pakistani products in international markets. Additionally, the tensions in the Red Sea have led to a decline in demand for Pakistani rice from traditional buyers in the Middle East, the United States, and Europe.

Addressing the challenges posed by these disruptions is imperative to safeguard Pakistan’s economic stability and global competitiveness. Over 90 percent of Pakistan’s trade volume passes through maritime routes, highlighting the importance of resolving the issues in the Red Sea. Efforts should be made to find alternative trade routes and mitigate the impact of inflated freight costs.

It is crucial for Pakistan to diversify its trade routes and explore partnerships with other countries to ensure uninterrupted trade and economic growth. The government must also focus on enhancing domestic production capabilities and reducing dependence on imported goods.

In conclusion, the prolonged disruptions in the Red Sea pose a significant threat to Pakistan’s trade and economy. The government, along with relevant stakeholders, needs to take immediate action to address these challenges and ensure the smooth flow of goods and services. Only by doing so can Pakistan maintain its economic stability and global competitiveness in the face of these disruptions.

Source: [Business Recorder](https://www.brecorder.com){:target=”_blank”}