SCO Interbank Consortium: Pakistan’s Chance to Rewrite the Trade Equation

Pakistan has been grappling with an imbalance in its external trade for several years, and despite a slight increase in the country’s exports, the trade deficit persists because the volume of imports remains stubbornly high. One of the major reasons is that Pakistan has been unable to achieve the required expansion in its exports, while factors such as industrial production, business costs, investment and competitiveness in international markets also affect export performance.
This imbalance is further underscored by the latest figures released by the State Bank of Pakistan, according to which Pakistan recorded a current account deficit of $356 million in September 2026, compared with a revised deficit of $73 million in August. The cumulative current account deficit during the first quarter of fiscal year 2026–27 swelled to $874 million. In September, exports of goods and services stood at $3.95 billion, registering a 15 percent increase compared with the same period last year. However, imports rose by more than 23 percent to $7.38 billion. During the same period, remittances from Pakistanis abroad amounted to $3.59 billion, providing some relief to external payments.
According to figures released by the Pakistan Bureau of Statistics, merchandise exports stood at $2.96 billion in September, while imports amounted to $6.49 billion, leaving a trade deficit of $3.53 billion. Pakistan’s external debt also further compounds this situation, as the country’s external debt was reported at approximately $138.8 billion in June 2026. Under these circumstances, merely reducing economic pressure through new loans, financial facilities or temporary cuts in imports will not be sufficient. Rather, increasing exports, productive capacity and sustainable foreign exchange earnings is now imperative.
In this context, Pakistan’s appointment to the chairmanship of the Shanghai Cooperation Organisation (SCO) Interbank Consortium can be seen as a major opportunity. HBL Chairman Sultan Ali Allana has assumed the responsibilities of head of the consortium. Previously, Sultan Ali Allana, a stalwart of the banking sector, successfully brought every project he undertook, including Habib Bank, to fruition. His chairmanship now provides a strong signal that, following the assumption of the consortium’s presidency, there are prospects of reducing the country’s trade deficit through new innovations. However, if other ministries, including Pakistan’s Ministry of Foreign Affairs, also coordinate with him and participate in relevant initiatives under economic diplomacy, economic success can be ensured.
Alongside this development, the implementation of existing arrangements for the use of national currencies in regional trade and cooperation among banks has also moved into focus. A currency swap agreement worth 30 billion Chinese yuan already exists between Pakistan and China, which was renewed in October 2024 for a period of three years. The primary purpose of such agreements is to facilitate bilateral trade, investment and financial cooperation and reduce reliance on the currency of a third country, particularly the US dollar, in transactions. However, one fundamental problem with bilateral trade in national currencies is that countries with chronic trade deficits are unable to earn sufficient amounts in their trading partners’ currencies to meet their import payment obligations. Simply swapping the dollar for local currencies does not eliminate the trade imbalance.
Therefore, it is necessary for the SCO Interbank Consortium to move beyond bilateral payments and pave the way for easy transactions and a multilateral trade-clearing system, a proposal put forward by the author in this article. Under the proposed system, trade obligations among member countries could be calculated at the level of the entire network rather than separately with each country. For example, if Pakistan imports more from one member country while exporting more to another, this mechanism could provide room for adjusting these obligations through mutual accounting and could be implemented accordingly. In this way, the excess liquidity of one country could help meet the temporary financial requirements of another.
For this purpose, the central banks of participating countries could be urged to establish bilateral currency swap agreements and further strengthen existing arrangements. Similarly, with the cooperation of participating banks, without causing any delay, a short-term financial facility could be explored to provide financial support on the basis of verified commercial transactions and temporary payment deficits. A proposal to introduce a common unit of account based on a specific basket of the national currencies of participating countries could also be considered. This could facilitate the valuation of regional trade and the calculation of net financial obligations. However, achieving tangible success in the initial stages would require the proper implementation of a common currency system. To make this system effective, it would also be necessary to strengthen the framework governing settlement periods and safeguards.
Following multilateral clearing, if any country is left with a net financial shortfall, it would have to settle it through an agreed convertible currency, a currency swap, a credit facility or another approved financial arrangement. In such a case, a reduction in the foreign exchange reserves of the country concerned would be an inevitable outcome.
In this regard, a technical working group comprising representatives of participating banks and central banks could be established to gauge the practical viability of these proposals and design an initial pilot system involving willing member countries.
However, Pakistan can only reap the real benefits of this entire financial cooperation if it also increases its export capacity. Top priority must be given to the production and export of products such as textiles and garments, processed food products and specialized industrial goods for which demand exists in SCO countries and which are currently being imported from other countries. For this purpose, export financing, compliance with international standards, competitive pricing and reliable payment systems must be combined.
If these proposals are implemented, there is no reason why the SCO Interbank Consortium should not become an effective institution driving regional trade, investment and financial connectivity rather than remaining limited to cooperation among banks. However, Pakistan’s true success will depend on creating alternative channels for payments in national currencies while simultaneously increasing the production and exports of its own products. This is because financial facilities can make trade easier, but achieving a lasting trade balance will require strengthening the export based production alongside placing greater emphasis on economic diplomacy.