By Staff Reporter
ISLAMABAD: Pakistan must revamp its lopsided trade pacts with 10 bilateral partners, adopt a market-driven exchange rate and slash energy and other input costs to reverse more than three decades of slumping exports and underpin lasting economic growth, according to the World Bank.
In policy guidance to the government, the lender noted that nearly all nations achieving swift and enduring expansion have done so by integrating into global markets, a route Pakistan has failed to navigate effectively. “Exports have declined from 16 per cent of GDP in the 1990s to just around 10pc in 2024, with the export basket still concentrated in low-value textile and agricultural products,” the World Bank said, adding that economic upturns had been fueled instead by debt and remittance-financed consumption, rather than export dynamism.
The Washington-based institution urged Islamabad to sustain a flexible exchange rate to bolster export competitiveness and support tariff overhauls. “Allow the emergence of a deep and liquid interbank market without SBP [State Bank of Pakistan] intermediation and encourage greater participation from a diverse range of market players, including exporters, importers and foreign investors,” it said.
The bank also called for the release of granular data on interbank dealings, including volumes and participants, and a gradual end to impromptu central bank actions, letting the exchange rate mirror actual supply and demand. It highlighted that as expansion picks up and spurs imports, foreign reserves come under pressure—especially under a rigidly controlled currency—sparking repeated balance-of-payments crises. This boom-bust pattern has sapped investor trust, curbed private capital inflows and weakened the pillars of prolonged, stable growth.
At the root of this export malaise are entrenched productivity and competitiveness hurdles, the lender said. Distortionary measures like steep tariff walls have inflated input and consumer prices, jacking up manufacturing expenses and steering companies toward sheltered domestic sales. At the same time, burdensome bureaucracy and oversight, coupled with a dominant government footprint in the economy—including over 200 federal state-owned enterprises—have hampered efficiency, discouraged investment and skewed resource distribution, while exporters grapple with financing bottlenecks.
Compounding matters, elevated customs handling and logistics fees persist, and state-backed initiatives to help businesses penetrate overseas markets have frequently fallen short, encompassing trade pact talks, frameworks for meeting export standards and promotional efforts abroad. Core productivity barriers thus linger unresolved, from sky-high electricity tariffs to scant access to essential digital networks. “In combination, these challenges have led to missing exports of close to $60 billion,” the World Bank said, prescribing an extensive reform agenda that includes bolstering preferential free trade agreements to widen market reach.
Such pacts with foreign counterparts act as vital tools for enhancing competitiveness and entry by easing obstacles and tackling trade facilitation matters like customs processes, norms and investment ties, fostering a supportive backdrop for exporters to scale up and branch out. Yet in Pakistan’s case, these deals are underused, squandering chances. “Pakistan remains party to only 10 trade agreements, most of which are shallow and limited to tariff liberalisation on a narrow set of goods,” it said.
The China-Pakistan Free Trade Agreement spans a broader array, encompassing tariffs, investment and trade facilitation, while pacts with Malaysia, Sri Lanka and the South Asian Free Trade Agreement are narrower in reach, the bank pointed out. This positions Pakistan behind ambitious comparators that harness more numerous and substantive agreements to integrate into worldwide supply chains and draw capital. “Deepening existing trade agreements and expanding coverage under those agreements to services, non-tariff measures and investment will be key,” it said.
The World Bank pressed the government to bolster the negotiation team’s capabilities via specialised training, hold routine dialogues with exporters and sectors to sync pacts with commercial prospects, and set up systems to track agreement rollout and efficacy. It further recommended pursuing paths to elevate current superficial preferential trade deals into more comprehensive ones spanning services, investment and digital commerce, including with untapped export destinations in areas like Sub-Saharan Africa and Latin America.
The lender praised recent tariff adjustments but stressed they require pairing with a pliable exchange rate, complete activation of the EXIM Bank of Pakistan, enhanced trade streamlining and wider structural changes to elevate export edge. The World Bank advocated building up the National Tariff Commission’s abilities to oversee, assess and apply anti-dumping and countervailing duties against unjust trade tactics, and to prioritise negotiation pushes on additional tariff cuts with major and rising trade allies.
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