Pakistan and Sri Lanka share warm and friendly relations through a long history based on religion, culture and trade. In 1948, after winning the independence, the first state visit of Late Prime Minister Hon. D. S. Senanayake to a foreign soil was Pakistan. Since then, nearly 10 two-way heads of state visits have taken place between the two countries. Both countries have since cemented their cooperation through Sports, Education, Technology, and Defense and are now considered as friends for all seasons.
Pakistan and Sri Lanka commenced formal trade in 1955 by providing the Most-Favored Nation (MFN) status to each other. At present, the bilateral trade landscape between Pakistan and Sri Lanka is supported by the Pakistan Sri Lanka Free Trade Agreement (PSFTA) signed in August 2002, effective since July 2005; South Asia Free Trade Agreement (SAFTA) and South Asia Preferential Trade Agreement (SAPTA). Under the PSFTA, Pakistan has offered duty-free market access to Sri Lanka on 206 products, while Sri Lanka has granted duty-free access to 102 products to Pakistan.
Sri Lanka’s exports to Pakistan stood at US$91.86 Mn in 2021, while Pakistan’s exports were US$ 394.34 in the same year, bringing the combined trade volume at US$ 486 Mn. At present, Pakistan is the 26th largest export market for Sri Lanka and Pakistan is Sri Lanka’s 12th largest import partner. This is in contrast to the trade patterns in the past.
Sri Lanka’s exports have started gaining momentum gradually, which have mostly been supported by the duty concessions granted by Pakistan. Within this context, Sri Lanka‘s export volume under FTA concessions amounted to 67% of total exports to Pakistan in the year 2021.
According to the Trade Complimentary Index prepared by SAARC Chamber of Commerce and Industry (2020) Pakistan-Sri Lanka bilateral trade has the combined potential of over US$ 2.7 billion. The close proximity (1531 nautical miles) between Pakistan and Sri Lanka can be covered within 4 days for speedy delivery of goods and therefore provides a tremendous advantage.
Future efforts on Sri Lanka Pakistan bilateral trade under the FTA should be focused more on identifying realistic export opportunities for Sri Lanka in Pakistan’s markets and identifying the possible constraints which Sri Lankan exporters may face in diversifying their exports to Pakistan.
Similar exercise must be undertaken on Pakistan’s side as well, since Sri Lanka is an important market for its textile products, pharmaceuticals, construction materials and fruits and vegetables, along with other products for which Pakistan records significant exports to other countries.
Pakistan has also proposed to Sri Lanka to include the chapters on Trade in Service and Investment Cooperation in the bilateral FTA, which can potentially unlock more avenues of economic integration and cooperation. Any FTA will provide a significant market share to partner countries on the drawing board but to get the best out of these agreements requires continuous refinement.
It is important that both governments encourage their exporters to tap each other’s markets by incentivizing and granting tax concessions on expenses incurred on research, innovation, and value addition and branding in order to help them adjust to the demands of the target market.
