Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
The United States and Pakistan have a strong economic and commercial relationship, with two-way trade reaching approximately $6.81 billion in 2020. The United States is one of Pakistan’s largest trading partners and continues to be one of the leading sources of foreign direct investment. Exports from the United States to Pakistan reached $2.91 billion in 2020, a 10 percent increase over $2.64 billion in 2019. The United States was Pakistan’s largest export market in 2020 at $3.9 billion, a 0.5 percent decrease from the previous year. American companies have profitable operations across a range of sectors, mainly fast-moving consumer goods, agriculture, financial services, franchising, information and communication technology, renewable energy, and health care services.
With a largely peaceful political transition in July 2018, the incumbent Pakistan Tehreek-e-Insaf (PTI) led collation government is facing steep economic challenges both at the macro and microeconomic levels. On the external front, Pakistan is facing a substantial trade deficit and balance of payments issues. Federal Board of Revenue (FBR) achieved tax collection target for FY2021 by collecting $30.5 billion against the revised target of $30.3 billion. However, the revenue collection by FBR fell short by $1.54 billion from the actual target for FY2021 $32.02 billion, which has hindered the government’s ability to maintain a balance of payments position and stable exchange rate and has caused high inflationary pressure on essential consumer products. In 2019, the federal government entered a 39-month extended arrangement with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF) for an estimated $6 billion bailout package. This budgetary support package is Pakistan’s 19th IMF program since gaining independence.
Like other global economies, Pakistan is facing an economic slowdown due to the global pandemic. As an import dependent economy, Pakistan is presently facing severe challenges, ranging from balance of payments, currency depreciation, to trade deficits stemming from high commodity prices in the international markets and supply chain disruptions. However, several policy reforms, coupled with assistance from multilateral financial institutions such as the IMF and a growth in exports have helped Pakistan’s GDP growth rate reach 3.94 percent, surpassing the 2.1 percent target during the last fiscal year. Internally, the Federal Board of Revenue (FBR) reported Rs.4,732 billion ($28.33 billion) in tax collections, 18 percent higher over the previous fiscal year.
American firms have a strong presence in Pakistan. Currently, there are more than 80 wholly- or majority-owned U.S. subsidiary firms registered with the American Business Council (ABC) of Pakistan and the American Business Forum (ABF). The U.S.-Pakistan Business Council, an affiliate of the U.S. Chamber of Commerce based in Washington D.C., is another forum for U.S. companies with business and investment interests in Pakistan. Hundreds of local firms represent U.S. companies in the market. Leading U.S. companies doing business in Pakistan include Pepsi-Cola, Coca-Cola, General Electric International, Wabtec, Procter and Gamble, Honeywell, NCR, Teradata, Pfizer, Abbott Laboratories, DuPont, Oracle, Microsoft, Dell, 3M, IBM, McDonald’s, KFC, Pizza Hut, Domino’s Pizza, P.F. Chang’s, IHOP, D&B, Eli Lilly, Excelerate Energy, Enercon and Caterpillar among many other U.S companies.
The U.S. corporate members of the ABC and ABF play an influential role in Pakistan’s economy by upholding global standards of corporate governance. According to the ABC, these companies have collectively invested over $1.5 billion in Pakistan and their cumulative annual revenue totals approximately $4 billion. ABC and ABF members pay direct and indirect taxes annually, contributing significantly to the national treasury. Despite security threats and familiar emerging market concerns over intellectual property rights, contract enforcement, and economic & governance issues, the Pakistan market offers many attractive trade and investment opportunities. For investors, the market has few restrictions on the movement of capital for foreign companies, no shareholding restrictions (beyond a few sensitive industry sectors), simple work-permit rules, no technology transfer requirements, and a large and sophisticated entrepreneurial class.
Pakistan and the United States signed a Trade and Investment Framework Agreement (TIFA) in 2003, which provides a forum for discussion of bilateral trade issues. The most recent TIFA intercessional meeting was held in May 2019.