How Pakistan is coping with the economic fallout of the Russia-Ukraine war

The war between Russia and Ukraine, which erupted in February 2022 after Russia invaded and annexed parts of eastern Ukraine, has created a global crisis that has affected many countries, including Pakistan. Pakistan, which has a strategic partnership with Russia and a neutral stance on the conflict, has faced several economic challenges and risks due to the war and its spillovers. Here are some of the ways that the war has impacted Pakistan’s economy and how Pakistan has tried to cope with them.

The war triggered a surge in global oil prices, as Russia is one of the largest oil producers and exporters in the world. The US and its allies have imposed sanctions on Russia’s oil and gas sector, disrupting supplies and increasing uncertainty. Brent crude prices reached nearly $130 per barrel in March 2022, up 43 percent from February 2021. Pakistan, which is a net importer of oil, has faced a severe terms of trade shock due to the high oil prices. According to the World Bank, Pakistan’s oil import bill increased by 75 percent in FY2022, reaching $18.5 billion. This has put pressure on Pakistan’s current account deficit, foreign exchange reserves, fiscal balance, inflation, and growth. Pakistan has tried to diversify its sources of oil imports, such as Saudi Arabia and Iran, and to reduce its oil consumption through conservation measures and alternative energy sources.

The war also affected global wheat prices, as Ukraine is one of the largest wheat exporters in the world. The US and its allies have imposed sanctions on Ukraine’s agricultural sector, affecting its production and exports. Wheat prices increased by 100 percent in real terms between June 2021 and April 2022. Pakistan, which imported 39 percent of its wheat for domestic use from Ukraine in 2021, has faced a food security challenge due to the high wheat prices. According to the World Bank, Pakistan’s wheat import bill increased by 150 percent in FY2022, reaching $3 billion. This has contributed to higher food inflation, poverty, and social unrest. Pakistan has tried to increase its domestic wheat production, such as by providing subsidies and incentives to farmers, and to diversify its sources of wheat imports, such as Kazakhstan and Australia.

The war has also affected Pakistan’s trade relations with both Russia and Ukraine, as well as other countries involved in the conflict. Pakistan’s trade with Russia amounted to $790 million in FY2021, with a trade surplus of $270 million. Pakistan’s main exports to Russia were textiles, fruits, vegetables, rice, leather, and surgical instruments. Pakistan’s main imports from Russia were iron and steel, fertilizers, machinery, chemicals, and minerals. The war has disrupted these trade flows due to sanctions, transport difficulties, currency fluctuations, and security risks. Pakistan has tried to maintain its trade ties with Russia by seeking exemptions from sanctions and exploring alternative routes and modes of transport. Pakistan has also tried to enhance its trade ties with other countries in the region, such as China, Iran, Turkey, and Central Asian states.

Pakistan’s trade with Ukraine amounted to $570 million in FY2021, with a trade deficit of $410 million. Pakistan’s main exports to Ukraine were textiles, fruits, vegetables, rice, leather, and sports goods. Pakistan’s main imports from Ukraine were wheat, iron and steel, machinery, chemicals, and edible oil. The war has disrupted these trade flows due to sanctions, transport difficulties, currency fluctuations, and security risks. Pakistan has tried to maintain its trade ties with Ukraine by seeking exemptions from sanctions and exploring alternative routes and modes of transport. Pakistan has also tried to enhance its trade ties with other countries in the region, such as China, Iran, Turkey, and Central Asian states.

The war has also created geopolitical implications for Pakistan’s security and foreign policy. Pakistan has a strategic partnership with Russia that covers diplomacy, defense, nuclear energy, and technology transfer. Pakistan has supported Russia’s role in Afghanistan and sought its cooperation on regional issues such as Kashmir and counterterrorism. Pakistan has also benefited from Russia’s arms sales and military training. The war has put this partnership at risk due to the US-led pressure on Pakistan to join the sanctions regime against Russia or face consequences. Pakistan has tried to balance its interests and expectations with both sides by adopting a neutral stance on the conflict and calling for a peaceful resolution through dialogue. Pakistan has also tried to leverage its partnership with China as a counterweight to the US influence.

Pakistan also has diplomatic relations with Ukraine that cover trade, education, culture, and tourism. Pakistan has supported Ukraine’s territorial integrity and sovereignty and condemned Russia’s aggression. The war has put this relationship at risk due to Russia’s pressure on Pakistan to recognize its annexation of parts of Ukraine or face consequences. Pakistan has tried to balance its interests and expectations with both sides by adopting a neutral stance on the conflict and calling for a peaceful resolution through dialogue. Pakistan has also tried to leverage its partnership with China as a counterweight to Russia’s influence.

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