Over the last decade, Pakistan has navigated a deeply complex web of international diplomacy, economic dependencies, and shifting geopolitical alliances. As a country situated at the crossroads of South Asia, Central Asia, and the Middle East, Pakistan’s foreign policy has long been shaped by strategic interests. However, from 2015 to 2025, the focus has increasingly tilted toward economic diplomacy. The results, while sometimes promising on paper, have exposed the state to vulnerabilities that question the long-term viability of current strategies.
The most defining chapter in Pakistan’s recent international engagements has been the China-Pakistan Economic Corridor (CPEC), launched under the Belt and Road Initiative. Signed in 2015 with an initial outlay of 46 billion dollars, later projected to exceed 62 billion dollars, CPEC was billed as a transformative venture. The infrastructure, energy, and connectivity projects promised economic uplift, especially in underserved regions such as Balochistan and northern Pakistan. To-date, Pakistan has received over 25 billion dollars in direct Chinese investment under CPEC. While energy shortages have been significantly reduced due to new power plants, the long-term costs including high-interest repayments, lack of local industrial participation, and rising trade imbalances have raised concerns about debt sustainability and the real benefits of such heavy reliance on a single partner.
This era also saw Pakistan’s recalibration of its relationship with the Gulf States, particularly Saudi Arabia and the United Arab Emirates. Financial aid and deferred oil payment arrangements, like the 3 billion dollar package from Saudi Arabia in 2018 and again in 2021, became short-term lifelines for Pakistan’s balance of payments. Remittances from Pakistani workers in the Gulf have remained a vital source of foreign exchange, consistently surpassing 20 billion dollars annually since 2019. However, these relationships have come at a diplomatic cost. For example, Islamabad’s hesitancy to support the Saudi-led coalition in Yemen led to temporary cooling of ties in 2015, and its increasingly independent foreign policy, particularly a tilt toward Turkey and Malaysia, occasionally complicated traditional alliances.
The United States, long a central actor in Pakistan’s foreign policy calculus, has scaled back both economic and military support over the last decade. The suspension of nearly 1.3 billion dollars in security assistance in 2018 under the Trump administration was a pivotal moment. The U.S. withdrawal from Afghanistan in 2021 redefined Pakistan’s strategic value in Washington’s eyes, shifting focus away from security cooperation to economic stabilization and counterterrorism. Yet, Pakistan failed to translate this transition into substantial trade benefits or strategic economic engagements. While diplomatic exchanges have continued, the absence of a structured long-term economic dialogue with Washington has been a notable shortfall.
Simultaneously, Pakistan’s relations with India have remained frozen, particularly after the revocation of Article 370 in Jammu and Kashmir by India in 2019. The lack of bilateral trade, completely suspended since 2019, has deprived Pakistan of a potentially lucrative market and raised input costs for various domestic industries. The loss in trade potential with India has been estimated at 10 billion dollars annually, a figure that reflects the economic cost of entrenched political rivalry.
On the multilateral front, Pakistan’s engagement with the International Monetary Fund (IMF) has defined much of its foreign economic relations. Since 2019, Pakistan has entered two Extended Fund Facility programs, the latest being the nine-month 3 billion dollar standby arrangement in 2023. These agreements have come with stringent fiscal and structural reforms, including energy price hikes and subsidy removals, which while necessary for macroeconomic stability, have deepened public hardship. Though foreign reserves saw temporary improvement, rising above 8 billion dollars in mid-2023, the economic relief has been short-lived without structural investment or industrial growth.
The diplomatic focus on Russia has also seen tentative expansion, particularly in the realm of energy imports. A significant breakthrough occurred in 2023 when Pakistan received its first shipment of discounted Russian crude oil. While this was touted as a step toward diversification, logistical limitations and lack of refining capacity have kept the scale modest. The pivot to Russia also adds complexity to Pakistan’s balancing act, especially in the context of Western sanctions.
Foreign Direct Investment (FDI), a key metric of international economic trust, has been inconsistent. Inflows have declined from 2.6 billion dollars in 2015 to around 1.5 billion dollars in 2024, reflecting both domestic instability and a tough global investment climate. The recurring political transitions, policy reversals, and law-and-order concerns have dented investor confidence, even as successive governments promoted initiatives like the Special Economic Zones under CPEC and digital entrepreneurship programs.
Pakistan’s diplomatic performance on climate finance has been a rare highlight. After the devastating floods of 2022, which caused over 30 billion dollars in economic losses, Islamabad played a key role in mobilizing international support, including a pledge of over 10 billion dollars at the Geneva donor conference in 2023. Yet, actual disbursements have been slow, and the lack of institutional capacity continues to obstruct climate resilience projects from achieving their full potential.
The past decade has offered a mixed diplomatic ledger. On one hand, Pakistan has maintained essential partnerships with major powers and regional stakeholders, keeping the door open for economic assistance and cooperation. On the other, it has failed to meaningfully diversify its economic diplomacy, over-relied on bilateral bailouts, and lost out on key regional opportunities. The price of economic survival has been high and in many cases, recurrent, without securing structural gains in productivity, exports, or innovation.
Going forward, Pakistan’s foreign policy will need a strategic shift from transnationalism to long-term economic integration. More than aid or loans, what the country needs is equitable trade access, robust regional connectivity, and credible economic governance that can earn trust on the international stage. Only then can Pakistan hope to convert its diplomatic capital into sustainable economic strength.
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