World Bank asks Pakistan to implement comprehensive reforms aimed at revitalizing its struggling export sector, a crucial step for achieving sustainable economic growth. The Washington-based lending institution has specifically called for an overhaul of the nation’s preferential trade agreements, a more flexible exchange rate policy, and deeper structural reforms to reduce energy and input costs. This strategic advice targets over three decades of declining exports, which have hindered Pakistan’s ability to fully participate in global markets.
World Bank Asks Pakistan to Review Skewed Trade Agreements
Pakistan’s export performance has steadily declined, dropping from 16% of GDP in the 1990s to an estimated 10% in 2024. The institution notes that economic upturns have often been fueled by debt and remittances rather than robust export dynamism. The country’s export basket remains concentrated in low-value textile and agricultural products, limiting its global market penetration.
Strengthening competitiveness and market access, the institution emphasized, requires leveraging free or preferential agreements. However, Pakistan is party to only 10 such agreements, many of which are shallow, focusing narrowly on tariff liberalization for a limited set of goods. For instance, while the China-Pakistan Free Trade Agreement is relatively comprehensive, pacts with Malaysia, Sri Lanka, and the South Asian Free Trade Agreement (SAFTA) have remained partial.
This leaves Pakistan trailing aspirational peers who utilize a greater number and depth of agreements. The World Bank urges deepening existing pacts and expanding their coverage to include services, non-tariff measures, and investment. It also recommends enhancing the negotiation unit’s capacity, establishing regular consultations with exporters, and exploring new agreements with non-traditional markets like Sub-Saharan Africa and Latin America.
Ensuring a Flexible Exchange Rate: A Major Directive
A crucial component of the policy advice is the establishment of a market-determined, flexible exchange rate to bolster export competitiveness. The institution advocates for a deep and liquid interbank market, free from State Bank of Pakistan (SBP) intermediation, encouraging broader participation from diverse market players. SindhNews.com highlighted this call for transparency, with the lending agency demanding the publication of detailed interbank market transaction data and a phasing out of ad hoc interventions.
Managed exchange rates, the institution observes, often strain foreign exchange reserves as imports accelerate, leading to recurrent balance-of-payment crises. This boom-and-bust cycle erodes investor confidence, constrains private investment, and undermines long-term growth foundations. A flexible rate, it argues, will genuinely reflect supply and demand.
Underlying Pakistan’s weak export performance are profound productivity and competitiveness challenges. Distortionary policies, such as high tariff barriers, have increased input costs and consumer prices, incentivizing firms to focus on protected local markets. Excessive red tape, regulation, and a heavy state presence—including over 200 federal state-owned enterprises—further impede efficiency, deter investment, and distort resource allocation. Exporters also face significant constraints in accessing finance.
Beyond policy, the costs of customs management and logistics are high. Fundamental constraints like exorbitant electricity costs and limited access to core digital infrastructure remain unaddressed. The World Bank estimates these combined challenges have resulted in “missing exports” close to $60 billion.
Conclusion
The World Bank’s extensive policy advice to Pakistan underscores the urgent need for comprehensive reforms. By improving trade agreements, ensuring a flexible exchange rate, and addressing core competitiveness issues like energy costs and regulatory burdens, Pakistan can unlock its export potential. While welcoming recent tariff reforms, the institution emphasizes that these must be complemented by deeper structural changes, including the full operationalization of EXIM Bank of Pakistan and stronger trade facilitation. Implementing these reforms is critical for transitioning from consumption and debt-driven growth to a sustainable, export-led economic trajectory.
Short Summary:
The World Bank has urged Pakistan to undertake critical economic reforms, including overhauling skewed trade agreements and establishing a flexible, market-determined exchange rate. Citing a decline in exports, the Bank’s advice aims to boost competitiveness, reduce input costs, and address long-standing productivity challenges to foster sustainable, export-led growth.