Bangladesh bets on a broken partner: Why reviving economic ties with Pakistan may backfire | Explained

Pakistan's Prime Minister Shehbaz Sharif (L) speaks with Bangladesh's interim leader Muhammad Yunus during a bilateral meeting on the sidelines of the D-8 summit in Cairo on December 19, 2024.

For the first time in twenty years, Bangladesh and Pakistan have revived their Joint Economic Commission (JEC), holding a two-day session in Dhaka earlier this week. The meeting, co-chaired by Bangladesh’s Finance Adviser Salehuddin Ahmed and Pakistan’s Petroleum Minister Ali Pervaiz Malik, was intended to restart economic cooperation after two decades of silence.

Yet, behind the optics of goodwill lies a risky political and economic calculation. Bangladesh’s engagement with an economy on the brink of collapse raises more doubts than optimism. The meeting may have been framed as a milestone, but the reality is that Dhaka has little to gain and much to lose from deepening ties with a financially unstable Pakistan.

A revival after two decades

The JEC, the highest bilateral platform for economic cooperation between the two nations, was last held in 2005 in Islamabad. This year’s revival focused on potential collaboration in agriculture, trade, IT, aviation, energy, shipping, and food processing.

Islamabad showed interest in importing jute and jute products from Bangladesh and proposed allowing Bangladeshi exporters to use Karachi Port for regional trade with China and Central Asia. Both sides agreed to appoint focal points in their ministries to track progress.

“This is a very important meeting. After 20 years, we’ve resumed our economic dialogue with Pakistan, and it has been a very successful one,” said Salehuddin Ahmed after the talks. “Cooperation in agriculture, IT, maritime transport, and other sectors will benefit both nations.”

Pakistan’s Petroleum Minister Ali Pervaiz Malik described the meeting as a “milestone in rebuilding economic cooperation,” calling on both sides to “expand beyond jute and explore new areas like agriculture, pharmaceuticals, and energy.”

Despite the polite diplomacy, the trade volume tells a different story. Bilateral trade stands at less than one billion dollars. Bangladesh imported goods worth 787 million dollars from Pakistan in FY2025 and exported only 80 million dollars, mainly jute and yarn. No concrete trade targets were finalised, and future progress will depend on bureaucratic follow-up.

A tale of two economies

The contrast between Bangladesh and Pakistan could not be starker. Bangladesh, once dismissed as a “basket case,” has grown into one of Asia’s most resilient economies. Its GDP of 411 billion dollars makes it the 33rd largest globally, supported by robust exports of 52 billion dollars and reserves of about 31 billion dollars.

Pakistan, on the other hand, remains in economic disarray. Growth is stuck at 3.5 percent, inflation exceeds 21 percent, and reserves have dropped below 4 billion dollars, much of it borrowed. The IMF estimates that Pakistan needs at least a 7 billion dollar bailout to avoid default. Between 2023 and 2026, it must repay around 75 billion dollars in external debt.

With rising inflation, political instability, and weak governance, Pakistan’s economic collapse has become structural. A cycle of excessive government borrowing, high energy costs, and collapsing private investment has left little room for recovery. The World Bank describes its economy as facing “pressures of unmanageable proportions.”

For Bangladesh, partnering with such an unstable economy offers little tangible advantage. Experts argue that the JEC may serve more as a symbolic gesture than a practical framework for cooperation.

Opportunism amid strained India-Bangladesh relations

Pakistan’s renewed outreach to Dhaka comes at a politically convenient moment. Relations between Bangladesh and India have deteriorated since the ouster of former Prime Minister Sheikh Hasina, whose pro-India stance anchored the relationship for over a decade.

Under Muhammad Yunus’s interim government, Dhaka has faced a diplomatic cooling from New Delhi. India has imposed restrictions on Bangladeshi exports such as jute, woven fabrics, and processed foods, citing protection of domestic industries. The withdrawal of the transhipment facility for exports to Europe and West Asia has hit Bangladesh’s exporters hard.

Bangladesh’s jute export earnings fell sharply to 3.4 million dollars in July 2025, compared to 12.9 million dollars a year earlier. Dhaka responded by halting yarn imports from India through major land ports.

Seizing this rift, Pakistan positioned itself as an alternative partner. During the JEC meeting, Islamabad offered to let Bangladeshi exporters use Karachi Port for trade with China and Central Asia and expressed interest in importing Bangladeshi jute. Yet, these offers carry more symbolism than substance. Karachi Port is already burdened by inefficiency and debt, while Pakistan’s logistics network lacks competitiveness.

Historical ghosts that refuse to fade

The diplomatic thaw also reopens unresolved historical issues. Pakistan’s Deputy Prime Minister and Foreign Minister Ishaq Dar recently claimed that “all issues of 1971” had been resolved. Dhaka quickly rejected the claim.

Foreign Adviser Touhid Hossain said, “We acknowledged that the issues of 1971 cannot be solved in a day. But we agreed to keep the conversation going.” He reiterated that a formal apology, repatriation of stranded Pakistanis, and division of pre-1971 financial assets remain pending.

Although the JEC signals dialogue, it does not erase decades of mistrust rooted in the legacy of the Liberation War.

Why it matters for India

For India, the Bangladesh-Pakistan rapprochement is both a strategic and diplomatic concern. Dhaka’s willingness to engage with Islamabad at a time of strained ties with New Delhi could complicate South Asia’s power balance.

India remains Bangladesh’s largest trading partner, primary transit route, and critical security ally. Any shift in Dhaka’s economic or diplomatic posture could affect border management, counterterrorism coordination, and regional trade corridors.

What concerns New Delhi most is the pattern of Dhaka’s recent foreign moves. Muhammad Yunus’s overtures to China, his remarks describing Beijing as the “only guardian of the ocean” for India’s northeastern region, and his controversial gift to Pakistani General Shamshad Mirza showing a map of Bangladesh that included parts of India’s Northeast, have all raised red flags.

While Bangladesh may view closer ties with Pakistan as a way to diversify its diplomacy, India sees it as a potential opening for both Chinese and Pakistani influence in its immediate neighbourhood. For New Delhi, this rekindled Dhaka-Islamabad dialogue is not just about trade, but about the shifting political loyalties in South Asia.

A risky balancing act

Despite the formal smiles, the JEC’s revival reflects more political posturing than genuine economic promise. Bangladesh risks alienating its most reliable partner, India, for the sake of symbolic cooperation with a country battling insolvency. Pakistan, in turn, is using the engagement to project relevance amid its regional isolation.

In practical terms, this economic “reset” offers little for either side. Bangladesh’s engagement with Pakistan may help Dhaka signal foreign policy independence, but the cost could be rising mistrust with India and little measurable economic gain.

The JEC may have reopened a forgotten channel, but in reality, both sides are walking a tightrope. For Bangladesh, the price of this diplomatic experiment could be far greater than the payoff.