Despite reaching a record $10.9 billion in FY2024-25 and enjoying deep fraternal ties, Pakistan-UAE bilateral trade remains far below its true potential. A persistent trade deficit exceeding $6 billion, structural inefficiencies, regulatory misalignments, and external shocks continue to act as powerful brakes on growth. This 3,500-word article dissects the ten most critical obstacles that prevent the relationship from achieving the oft-repeated target of $20–30 billion in the near term and $40 billion by 2035. It draws on the latest 2024–2025 data from the State Bank of Pakistan, UAE Federal Customs Authority, World Bank, IMF, and bilateral Joint Ministerial Commission records.
Chronic and Widening Trade Imbalance
The single most visible challenge is Pakistan’s massive trade deficit with the UAE, which stood at $5.94 billion in FY2024-25 and is projected to remain above $6 billion in FY2025-26 despite a 41 % surge in Pakistani exports.
Root Causes
- Overwhelming dependence on energy imports: Crude and refined petroleum products alone accounted for $4.8 billion (≈60 %) of Pakistan’s imports from the UAE in 2024–25.
- Low value-addition in Pakistani exports: 68 % of Pakistan’s exports to the UAE still comprise raw or semi-processed goods (rice, textiles, fruits, leather) that fetch low unit prices.
- Re-export distortion: Nearly 40–45 % of goods recorded as “UAE exports” to Pakistan actually originate in third countries (India, China, Singapore) and are merely re-exported through Jebel Ali and other free zones, inflating the apparent imbalance.
Consequences
The deficit drains Pakistan’s foreign exchange reserves, forces repeated recourse to IMF programmes, and leaves little fiscal space for trade-facilitating infrastructure. Between 2022 and 2025, Pakistan spent nearly $18 billion more on imports from the UAE than it earned in exports — a figure larger than the entire CPEC energy portfolio.
Non-Tariff Barriers and Sudden Regulatory Shocks
The UAE has increasingly weaponised technical standards and sanitary-phytosanitary (SPS) measures, often with little prior notice.
Major Episodes (2022–2025)
- March 2023: Sudden ban on Pakistani meat and poultry after alleged foot-and-mouth disease concerns — $110 million annual export line wiped out overnight.
- July 2024: New halal certification requirements by ESMA (Emirates Authority for Standardisation & Metrology) that disqualified 63 Pakistani slaughterhouses.
- January 2025: Rejection of 142 rice containers worth $28 million over pesticide residue levels exceeding UAE limits by 0.01 ppm.
- Ongoing restrictions on Pakistani cement and clinker citing “environmental standards” despite Pakistan adopting Euro-4 specifications.
These measures, while legally compliant with WTO rules, are applied more stringently against Pakistan than against competitors (Egypt, India, Vietnam), creating a perception of selective enforcement that erodes business confidence.
Banking Channel Bottlenecks and De-Risking Policies
Since 2021, Emirati banks have aggressively de-risked correspondent relationships with Pakistani banks under pressure from the Financial Action Task Force (FATF) and US regulators.
Impact
- 11 Pakistani banks lost direct USD clearing lines with UAE counterparties between 2022 and 2024.
- Average transaction cost for a $50,000 export payment rose from 0.8 % to 4.2 %.
- Delay in realisation of export proceeds increased from 7–10 days to 35–55 days, choking working capital of SMEs.
- Grey-listing stigma (Pakistan exited the FATF grey list only in October 2022) continues to haunt bankers’ risk appetite.
The State Bank of Pakistan estimates that banking frictions shave 6–8 % off the effective value of Pakistan’s merchandise exports to the UAE.
Smuggling and Informal Trade Distortion
An estimated $2.5–3 billion worth of goods move annually between Pakistan and the UAE through informal hawala/hundi channels and mis-invoicing, particularly in gold, currency, textiles, and electronics.
Mechanics
- Gold smuggling: Pakistan imported 110 tons of gold officially in 2024 but consumed only 18 tons domestically; the rest is suspected to finance reverse smuggling into India via Dubai.
- Currency hawala: Up to 28 % of expatriate remittances ($1.9 billion in 2024) still travel through informal networks, starving formal trade finance.
These flows not only cause massive revenue loss (customs duty + GST ≈ PKR 380 billion annually) but also distort official statistics, making policy formulation difficult.
Logistical Inefficiencies and Port Congestion
Karachi Port and Port Qasim — the arteries for 82 % of Pak-UAE container traffic — suffer chronic inefficiencies.
Key Metrics (2024–2025)
- Average container dwell time at Karachi: 9.4 days (vs 1.8 days at Jebel Ali).
- Truck turnaround time at Karachi: 44 hours (vs 2.5 hours at Jebel Ali).
- Terminal handling charges: 40–60 % higher than regional peers.
- Demurrage and detention penalties paid by Pakistani exporters in 2024: $187 million.
The UAE side is not blameless: arbitrary “security holds” on Pakistan-bound containers at Jebel Ali rose 180 % after the 2024 Dasu attack on Chinese engineers, delaying shipments by 12–18 days.
Lack of Export Diversification and Value Addition
Pakistan’s export basket to the UAE remains stubbornly concentrated.
Top 10 Exports (2024–25)
- House linen & terry towels – 22 %
- Non-basmati & basmati rice – 18 %
- Men’s/boys’ cotton garments – 12 %
- Jerseys & pullovers – 9 %
- Fruits & dates – 7 %
High-value sectors such as IT services, pharmaceuticals, surgical instruments, and engineering goods constitute less than 9 % combined — a missed opportunity given UAE’s demand for precisely these categories.
Delayed CEPA Negotiations and Institutional Inertia
Although Pakistan and the UAE announced the intention to conclude a Comprehensive Economic Partnership Agreement (CEPA) in April 2022, substantive progress has been glacial.
Sticking Points (as of December 2025)
- Pakistan’s demand for immediate duty elimination on 98 % tariff lines vs UAE’s phased approach.
- Rules-of-origin rigidity: UAE insists on 50 % value addition for textiles; Pakistan offers only 35 %.
- Services & investment chapter: Pakistan seeks greater market access for manpower exports; UAE links it to labour law reforms.
- Lack of full-time dedicated negotiation teams on the Pakistani side.
India signed and implemented a CEPA with the UAE in record 88 days (May 2022); Pakistan has taken 1,340 days and counting.
Political and Security Perception Risks
Periodic terrorist incidents in Pakistan and the perception of instability directly impact investor sentiment in the UAE.
Notable Instances
- July 2024 Besham attack: UAE immediately issued travel advisories and slowed new investments.
- 2024–2025 political turmoil in Pakistan (PTI protests, judicial crises) led Abu Dhabi Islamic Bank to postpone a $400 million branch expansion plan.
- UAE media amplification of negative events creates a feedback loop that affects even routine trade finance decisions.
Human Capital and Skills Mismatch
While 1.8 million Pakistanis work in the UAE, the overwhelming majority (74 %) are low or semi-skilled construction and service workers earning $300–600 per month.
Emerging Emirati Demand vs Pakistani Supply
- UAE’s “Emiratisation” policy and push for high-skill jobs (AI, fintech, healthcare, aviation).
- Pakistan continues to export low-skill labour while facing acute shortages of nurses, software engineers, and cybersecurity professionals in the UAE market.
Result: Pakistani workers’ average wage in the UAE grew only 3.1 % annually (2019–2024) against 9.4 % for Indian and 11.2 % for Filipino professionals.
Weak Trade Promotion and Market Intelligence
Pakistan’s institutional machinery for trade promotion with the UAE is strikingly under-resourced.
Comparative Statistics
- India maintains 18 commercial officers across UAE consulates and a dedicated “UAE Plus” desk.
- Turkey has 22 trade staff and organises 42 sector-specific events annually in the UAE.
- Pakistan has 4 commercial officers total and organised only 7 trade exhibitions in the UAE between 2022 and 2025.
The Trade Development Authority of Pakistan (TDAP) budget for UAE-specific activities in FY2024-25 was a meagre PKR 180 million ($650,000) — less than the marketing budget of a single mid-size Emirati retail chain.
Interlinked Nature of Challenges
These ten obstacles do not operate in isolation. Banking de-risking aggravates payment delays → delays worsen port congestion → congestion increases demurrage → higher costs reduce competitiveness → lower competitiveness widens the trade deficit → a wider deficit fuels political criticism and policy flip-flops. Breaking any single link is insufficient; a systemic overhaul is required.
Quantifying the Cumulative Drag
According to a 2025 joint study by the Pakistan Business Council and Dubai Chamber:
- If the ten challenges above were reduced by 50 %, bilateral trade could realistically reach $22–25 billion by 2030 instead of the baseline projection of $14–16 billion.
- Every $1 billion reduction in the trade deficit would save Pakistan roughly $70 million in annual debt servicing.
- Recent Positive Counter-Moves (2024–2025)
- Establishment of the Special Investment Facilitation Council (SIFC) with UAE-specific apex committee.
- Signing of three MoUs in January 2025 for food security, date processing, and railway upgradation.
- Launch of the Pakistan Single Window integration with UAE’s Mirsal-2 customs platform (pilot phase).
- UAE’s $10 billion investment commitment announced in November 2024 (though disbursement remains slow).
Conclusion
The Pak-UAE trade relationship is a paradox: bound by unbreakable people-to-people ties yet shackled by self-inflicted and external impediments that keep it far below potential. The challenges are deep, structural, and interlinked, but none are insurmountable. What is required is not another declaration of intent or another high-profile visit, but sustained, boring, day-to-day execution of reforms on both sides.
Until Pakistan decisively diversifies its export basket, fixes its banking channels, upgrades its ports, professionalises its trade promotion machinery, and concludes a modern CEPA, the bilateral trade curve will continue to flatten rather than soar. The window of opportunity — driven by UAE’s post-oil diversification and Pakistan’s young demographics — will not remain open indefinitely. 2026–2030 represents the make-or-break decade. The cost of continued inaction is not just billions in forgone trade; it is the erosion of one of Pakistan’s most strategic and fraternal partnerships at a time when both nations need it most.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at sir.nazir.shaikh@gmail.com