By Anwar Ullah

The middle-power conundrum, a basic problem in international political economics, is presented by the growing systemic tension between the United States and China. Pakistan is compelled to sit at the center of the current great-power struggle due to this strategic rivalry, which is a serious macroeconomic issue. The United States, the state’s biggest bilateral export market, and China, its biggest foreign investor and principal bilateral creditor, put it in a precarious position. In an effort to avoid the constrictive pitfalls of zero-sum bloc politics, Islamabad is gradually shifting away from legacy geopolitics and toward a philosophy of cooperative geo-economics in order to navigate this divisive global environment.

This balancing act is driven by glaring structural dependencies. Pakistan’s balance of payments still depends heavily on the United States, which supplies important foreign exchange and absorbs a sizable portion of its export commodities. The US exported $3.3 billion worth of goods to Pakistan in 2025, primarily agricultural commodities and cotton, while the US imported $5.4 billion worth of goods from Pakistan. Pakistan’s infrastructure and energy security are simultaneously anchored by China. Net Chinese foreign direct investment (FDI) in Pakistan increased by 90.4% to $1.22 billion in the fiscal year 2024–2025, accounting for 49.9% of the country’s total worldwide FDI of $2.46 billion. The power industry received $1.17 billion of this Chinese cash, with $759.4 million going directly to hydropower projects.

Serious sovereign risks are introduced by this concentrated exposure. Pakistan’s economic stability could be severely damaged by forced alignment with either bloc. As a result, the state is pursuing no-camp politics in order to maintain its strategic independence and avoid falling behind a growing global tech curtain, thereby maintaining access to cutting-edge technology from both Beijing and Washington. Pakistan is moving toward comprehensive national security, which puts economic resilience ahead of limited military defense, in order to operationalize this balancing act. Given Pakistan’s domestic weaknesses, such as its reliance on a $7 billion IMF Extended Fund Facility authorized in September 2024, its total external debt of $138 billion in 2025, and its investment-to-GDP ratio that dropped to a 50-year low of 13.1% in 2024, this change is crucial.

Using the Special Investment Facilitation Council (SIFC) is at the heart of this geoeconomic theory. The SIFC is a civil-military hybrid that was founded in June 2023 with the goal of serving as a single channel to get around bureaucratic obstacles and draw in foreign investment. The goal of institutionalizing a direct military role in economic governance is to provide foreign investors with security and policy continuity. Pakistan is aiming for Gulf Cooperation Council (GCC) sovereign capital through the SIFC. Under a scheme run by the military-affiliated FonGrow, the state is currently requesting up to $6 billion from Saudi Arabia, the United Arab Emirates, Qatar, and Bahrain for corporate farming operations to cultivate 1.5 million acres of land. In addition to agriculture, SIFC is discussing Saudi involvement in the multibillion-dollar Reko Diq copper mine and leasing a seaport to a UAE company. Additionally, Riyadh offers vital balance-of-payments assistance, such as the planned rollover of $5 billion in bilateral loans and a $1.2 billion deferred oil facility that runs through early 2026.

At the same time, Pakistan has to guarantee its privileged market access to the EU, which consumes 30% of its overall exports. Pakistan sold €8.7 billion to the EU in 2025 under the GSP+ program, which has been extended until December 2027. Tariff exemptions directly enabled €7 billion of these exports. The first ten months of FY2025–2026 saw a pitiful 0.51% year-over-year gain in exports to Western Europe, while important markets including the Netherlands, France, and Belgium saw reductions. Stricter EU laws pose a threat to this commercial partnership. The updated GSP framework will raise the threshold for labor and human rights by increasing compliance requirements from 27 to 32 international treaties starting in January 2027. The European Commission’s unwillingness to suspend Pakistan’s status indicates a strategic compromise, despite the fact that EU officials have brought attention to governance issues. In order to maintain security relations, the EU continues to selectively enforce GSP+ rules while prioritizing Pakistan as a crucial regional counterterrorism and counterdrug partner.

Pakistan needs to shift from reactive finance reliance to proactive value creation in order to overcome its middle-power predicament. The state can use its geographic and security advantages as economic leverage by engaging in strategic waffling and upholding flexible, issue-based alignments instead of permanent bloc integration. To effectively position Pakistan outside of the CPEC, this multi-aligned strategy, supported by SIFC reforms and diverse FDI, is crucial.

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