Red Sea Disruption Threatens Pakistan’s Economy

Red Sea Disruption Threatens Pakistan’s Economy — The recent disruption in the Red Sea, a crucial maritime trade route, poses severe consequences for Pakistan’s trade and overall economy, as highlighted in the Economic Survey of Pakistan 2023-24.

With over 90 percent of Pakistan’s trade volume reliant on maritime routes, any interruption can significantly impact the nation’s economic stability.

The Red Sea has long been the shortest and most efficient trade pathway between Asia and Europe. However, recent disruptions have forced vessels to reroute around the Cape of Good Hope, extending journeys by over 3500 nautical miles and adding 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. During 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 multifaceted, affecting the timely arrival of essential goods, including raw materials and finished products, thereby disrupting domestic supply chains.

The delay in the supply of imported raw materials has exacerbated 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. Notably, the textile sector, which accounts for around 60 percent of Pakistan’s total exports, is under immense pressure. The timely availability of raw materials and machinery imports is crucial for textile and apparel producers. Disruptions in shipping schedules result in production delays and increased costs.

For instance, in mid-January, shipping companies hiked freight charges by 140 percent, rising from USD 750 to approximately USD 1800. This drastic increase affects exporters and undermines the competitiveness of Pakistani products in international markets. Additionally, escalating 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.

The complexity of the Red Sea disruption underscores the severity of its consequences for Pakistan’s economy. Prolonged disruptions will continue to hinder supply chains, potentially stalling efforts to contain inflation. Addressing these challenges is imperative to safeguard Pakistan’s economic stability and global competitiveness. The government must explore alternative trade routes and negotiate international support to mitigate the impact of these disruptions on the nation’s economy.