Partnering South Asia

"Love thy neighbours" is one of the emblems of the flag bearers of humanity all over the world.
Add to the adage the fact that loving ones neighbours can be strategically beneficial, particularly in terms of economic cooperation between countries, and one will likely see a ray of bright light with respect to trade between Pakistan and her neighbours.
In light of this, the Asian Development Outlook (ADO) report for September 2010 strongly entreats for greater economic integration between South Asian countries to enhance their growth potential.
Currently, the report rates the economic trade ties between South Asian countries as low in terms of intermediate goods, final goods and services, with interregional trade at less than 20 percent.
In another development, the ADBs report also reveals that inflationary expectations for the South Asian region have been revised upwards, particularly because of escalating food commodity prices. Out of the eight countries in the region, most are experiencing food price hikes.
For Pakistan, rising inflation can be quite detrimental in context of its balance-of-payments account (BoP). Since, the imports far surpass the exports rising inflation will mean home-produced goods will become more expensive in foreign markets such as the US, Pakistans major trading partner.
In the wake of this scenario, perhaps opening up trade with other South Asian countries, in particular India, does not seem like a hollow notion, since the inflationary expectations in these economies also remain fairly high.
Even before the floods, economists emphasized greater regional cooperation between India and Pakistan.
"The whole country will benefit from better economic relations with India. They have a middle class of 300 million people; we have a middle class of 30 million people.....our market will also grow tremendously as it will reduce our unit of production," Dr. Ishrat Hussain, former governor SBP, said in an interview to BR Research earlier this year.
In the post-flood scenario, that option emerges as a possible out-of-the-box solution to help Pakistan pull out of the abyss.
The ADO report emphasizes that the huge size of Indias market and its tighter integration with other East Asian countries can be the basis for other South Asian countries to first integrate within the region and later build up trade with East and Southeast Asia, encouraging pan-Asian integration.
It calls for South Asian countries to work on easing the high tariff and non-tariff trade protection which it cites as major hindrances to the sub-regional trade ties.
However, given the historical strife between the two key players in South Asia - India and Pakistan - the removal of trade barriers and trade costs may not be enough for promoting interregional trade.
More cooperation and trust should be encouraged between the leading South Asian countries for strong and stable trade relations.

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CHANGE IN ADBS INFLATION FORECASTS

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                    2010                   2011

              Apr-10   Sep-10   Apr-10   Sep-10

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South Asia      6.0      7.9      6.0       6.5

Bangladesh      7.5      7.3      7.8       7.5

India           5.0      7.5      5.5       5.5

Pakistan       12.0     11.7      8.0      13.0

Sri Lanka       6.5      6.5      8.0       8.0

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Source: Asian Development Outlook September 2010