Pakistan-Afghanistan Bilateral Trade & Afghanistan’s Trade with Other Regional Countries

This report, derived from an extensive research study conducted by the Pakistan Business Council (PBC), explores the evolving dynamics of Pakistan-Afghanistan Bilateral Trade & Afghanistan’s Trade with Other Regional Countries. The study highlights the pivotal role Afghanistan plays not only as a direct trading partner for Pakistan, but also as a transit route for Pakistan’s trade with the Central Asian Republics. The report examines trade flows, identifies structural bottlenecks, and recommends actionable policy measures aimed at enhancing regional trade integration

In 2023, Afghanistan’s population increased from 41.13 million in 2022 to 42.24 million, while its GDP declined from $14.18 billion in 2022 to $13.92 billion in 2023. The country faced a negative growth rate of -6.75% in 2023, however, inflation fell sharply from 10.6% in 2022 to -7.71% in 2023.

Pakistan-Afghanistan Bilateral Trade Trends:

Pakistan’s exports to Afghanistan increased steady between 2020 and 2024, rising from $852.31 million in 2020 to $1,140.17 million in 2024. Major exports include cereals, cement, pharmaceuticals, edible vegetables, and textiles. On the import side, Pakistan’s purchases from Afghanistan peaked at $880.07 million in 2023 before declining to $566.44 million in 2024.

Afghanistan Trade with Border Countries other than Pakistan:

Afghanistan maintains strong trade ties with its other neighboring countries — Iran, Tajikistan, and Uzbekistan. In 2023, exports to Tajikistan reached $42.22 million, mainly fresh tropical fruits, while imports stood at $80.67 million, dominated by electrical energy ($57.04 million) and cement ($13.99 million). In 2022, trade with Iran was heavily import-driven at $1,556.44 million, led by mineral fuels and plastics, against modest exports of $34.17 million, mainly sunflower seeds. Similarly, trade with Uzbekistan involved $541.21 million in imports — primarily wheat flour ($268.53 million) — and $11.30 million in exports, largely cotton and almonds.

Afghanistan Trade with Non-Border Regional Countries:

In 2023, Afghanistan’s trade with non-border regional countries remained concentrated with major partners being India, China, Kazakhstan, Turkey, and the UAE. India was Afghanistan’s major export market with $666.15 million in exports, mainly dried fruits, resins, and gums, and $362.34 million in imports, led primarily by pharmaceuticals. China received $64 million in exports, mostly pine nuts, and supplied $1,269.78 million in imports. Trade with Kazakhstan involved $31.15 million in exports (flavored waters) and $615.51 million in imports (wheat flour). Turkey accounted for $31.15 million in exports (dried apricots) and $256.41 million in imports (oils, machinery), while trade with the UAE in 2022 totaled $9.48 million in exports (mainly gold) and $1,254.38 million in imports, largely tobacco products.

Challenges

High Infrastructure Development CESS (IDC):

A 2% IDC imposed by the Khyber Pakhtunkhwa government on exports to Afghanistan inflates prices, undermining Pakistan’s competitiveness in the Afghan market.

Absence of Formal Banking Channels:

Due to international sanctions on Afghanistan’s financial system, formal banking links are non-functional forcing traders to rely on informal systems like hawala, physically carrying cash across the border raising both transaction costs and financial risks.

Inadequate Border Infrastructure:

Limited storage, absence of cold chain facilities, and space constraints at critical crossings like Torkham result in spoilage of perishable exports, including fruits, vegetables, and meat.

Cumbersome Customs Procedures and Security Checks:

Trade is hampered by multi-agency clearance requirements, frequent delays, and overlapping inspections, significantly increasing transaction time and costs.

Political Tensions and Trade Disruptions:

The eruption of frequent political disputes between Pakistan and Afghanistan further complicates trade relations. For instance, during the grape season, Pakistan increased tariffs by 15%, leading to significant losses for Afghan farmers as their products went to waste. In retaliation, Afghanistan raised tariffs on Pakistani products. These ongoing political tit-for-tat continues to harm traders, producers, and farmers on both sides

Recommendations

Reduction in Infrastructure Development Cess (IDC):

Rationalizing the Infrastructure Development CESS to align with regional practices would immediately improve price competitiveness of Pakistani exports.

Formalizing Payment Systems:

The establishment of bilateral payment agreements, digital banking channels, and trade financing options can replace informal settlements, reduce risk, and improve foreign exchange inflows.

Border Infrastructure Development:

Investments in cold storage, container yards, and dedicated trade terminals at Torkham and other crossing points are urgently needed, ideally through Public-Private Partnerships (PPP).

Simplifying Customs and Trade Procedures:

Digitizing customs clearance processes and establishing joint border management units can significantly reduce clearance times and transaction costs.

Trade Credit Guarantee Scheme:

Introducing a trade credit insurance mechanism would protect exporters against losses from unforeseen border closures or policy shifts, promoting greater trade stability.

Expanding Market Access through Trade Agreements:

Negotiating preferential or free trade agreements with Afghanistan and Central Asian countries can facilitate Pakistan’s entry into new markets for products like pharmaceuticals, cereals, and processed food.

Trade Promotion Activities:

Organizing B2B networking events, trade delegations, and exhibitions to showcase Pakistani products in Afghanistan and Central Asia.

 

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

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