In a hard-hitting policy advisory, the World Bank has laid bare what Pakistan’s policymakers have long known but seldom acted upon: that the country’s export malaise is not merely a symptom of cyclical downturns but a structural failure rooted in policy inconsistency, market distortions, and a chronic inability to reform.
The Bank’s latest assessment calls for a decisive shift towards a market-determined exchange rate, deep structural reforms to reduce energy and input costs, and an urgent overhaul of preferential trade agreements (PTAs) that have yielded little beyond ceremonial diplomacy.
This isn’t the first time Pakistan has been told to liberalise, deregulate and compete. Yet, what distinguishes this latest advice is the depth of its indictment; an economy that once saw exports at 16 per cent of GDP in the 1990s has fallen to a mere 10 per cent by 2024, even as regional peers like Vietnam, Bangladesh, and India have surged ahead. The World Bank’s estimate of ‘missing exports’ worth $60 billion is a mirror to Pakistan’s policy misalignment and governance inertia.
At the heart of Pakistan’s economic volatility lies the perennial debate over the exchange rate regime. The World Bank’s call for a “deep and liquid interbank market without SBP intermediation” directly challenges decades of managed float policy and administrative interventions that have distorted market signals. The argument is simple but crucial: as long as the exchange rate remains politicised, it will be periodically defended with borrowed reserves or ad hoc interventions. Pakistan will continue to experience boom-bust cycles marked by artificial growth spurts followed by external account crises.
A flexible, market-determined exchange rate would allow genuine price discovery, restore investor confidence and improve export competitiveness. But this prescription has always faced political resistance. Successive governments have feared currency depreciation for its inflationary impact, ignoring that artificial stability only postpones the crisis. The SBP’s sporadic interventions defending the rupee one day and letting it slide the next have only deepened uncertainty in the interbank market.
Allowing the exchange rate to reflect supply and demand dynamics would incentivise exporters, attract foreign investors and discourage speculative hoarding of dollars. But it also demands political courage to absorb short-term pain for long-term stability, a quality that remains in short supply.
The second axis of Pakistan’s competitiveness crisis lies in the exorbitant cost of doing business, driven largely by high energy tariffs and cascading input costs. Industrial electricity tariffs in Pakistan average 15–18 cents per kWh, nearly double that in competing economies like Bangladesh or Vietnam. Add to this the surcharges, cross-subsidies and taxes built into energy pricing, the result is a deindustrialising export base where manufacturers increasingly serve the domestic market rather than compete globally.
The World Bank’s emphasis on deeper reforms is a reminder that cosmetic tariff cuts or ad hoc subsidies are no substitute for structural fixes. Rationalising the energy mix, curbing circular debt, renegotiating capacity payments with IPPs and investing in grid modernisation are essential steps to lower the burden on productive sectors.
Pakistan’s manufacturing firms are also crippled by expensive imported inputs, cumbersome regulatory processes and limited access to credit. Exporters frequently encounter delays in tax refunds, power outages and bureaucratic bottlenecks that hinder competitiveness. The very red tape that the World Bank highlighted has turned the state from a facilitator into a barrier.
While the global economy has evolved towards deep and diversified trade integration, Pakistan’s preferential trade architecture remains outdated and underutilised. The World Bank’s criticism of Pakistan’s 10 bilateral and regional agreements exposes the hollowness of trade diplomacy that values signatures over substance.
The China-Pakistan Free Trade Agreement stands out as the only relatively comprehensive deal, yet even it has disproportionately benefited China. Agreements with Malaysia, Sri Lanka and the South Asian Free Trade Area (Safta) remain narrow in scope and shallow in ambition.
Pakistan’s trade negotiators often lack both technical expertise and real-time industry consultation. The result is agreements misaligned with business realities – tariff preferences that exporters don’t use, non-tariff barriers that remain unaddressed and weak institutional follow-up on implementation. The World Bank’s call to strengthen the negotiation unit, train technical teams and institutionalise stakeholder consultations is both urgent and essential. Without such capacity-building, Pakistan’s trade deals will continue to be policy showpieces rather than market enablers.
The Bank’s suggestion to explore non-traditional markets, particularly in Sub-Saharan Africa and Latin America, is also a timely reminder that Pakistan’s export geography is dangerously narrow. Over 60 per cent of exports are concentrated in just a few countries and sectors, primarily textiles and rice. Diversification, both in markets and products, is not just desirable but also existential.
Beyond trade and tariffs, Pakistan’s economic dysfunction lies in an overextended, underperforming state. With over 200 federal SOEs and an ever-growing bureaucratic footprint, the economy suffers from crowded-out private investment and distorted resource allocation. The World Bank’s emphasis on reducing state presence and redundant regulation aligns with the long-delayed reform agenda of privatisation, governance restructuring and regulatory simplification. Yet, resistance from vested interests, political patronage and weak institutional coordination have kept these reforms perpetually on paper.
Pakistan’s customs management and logistics inefficiencies also amplify trade costs. Despite the establishment of the Pakistan Single Window, bureaucratic silos persist between customs, ports and regulatory agencies. For exporters, these inefficiencies translate into longer clearance times, higher demurrage costs and loss of global competitiveness.
Even when policy directions are sound, Pakistan’s tragedy lies in the execution gap, the chronic inability to translate recommendations into action. This policy alienation stems from fragmented decision-making, lack of accountability, and the absence of a coordinated reform authority. For example, while tariff rationalisation reforms have begun, they operate in isolation from exchange rate policy or energy pricing, resulting in disjointed impacts.
Similarly, the operationalisation of the EXIM Bank of Pakistan has faced repeated delays. Without functional institutions to back reforms, policy credibility erodes and investor confidence diminishes. The National Tariff Commission, too, lacks the capacity and autonomy to effectively deploy anti-dumping or countervailing measures, leaving local industries exposed to unfair competition.
The result is a vicious cycle of reform announcement without implementation, followed by donor fatigue and public scepticism. The World Bank’s report, while incisive, risks joining a long list of reform blueprints that gather dust unless anchored in strong political ownership.
If Pakistan heeds the World Bank’s recommendations, the medium-term impacts could be transformative. A market-determined exchange rate would restore competitiveness, improve foreign exchange management and gradually attract portfolio and direct investment. Rationalising energy and input costs would lower the cost of doing business, incentivise industrial diversification and create jobs in export-oriented sectors.
Deepening trade integration through modernised agreements could open access to new markets, foster technology transfer and integrate local firms into regional supply chains. Strengthened institutions like the NTC and EXIM Bank would provide a protective yet enabling framework for exporters.
However, the short-term adjustment would be painful. A flexible exchange rate would likely cause temporary inflationary spikes, and energy reforms could initially face public backlash. Political instability or resistance from entrenched interest groups could stall reforms midstream. But the alternative would only perpetuate stagnation and vulnerability.
Pakistan’s economic story has long been one of crisis management masquerading as policy reform. Each external shock from oil prices to IMF negotiations has prompted temporary stabilisation, never transformation. The World Bank’s warning, though not new, is more urgent than ever. Without structural reforms to make the exchange rate market-driven, reduce energy inefficiencies and revitalise trade policy, Pakistan will remain trapped in its low-growth, high-debt equilibrium.
For once, the challenge is not of diagnosis but of political will and institutional coherence. Pakistan has the tools but lacks the synchronisation to turn them into results. The government must shift its focus from managing the crisis to promoting competitiveness. The world has changed; global trade is now driven by agility, integration and innovation.
If Pakistan continues to rely on remittance-fueled consumption and import-heavy growth, its economic sovereignty will remain hostage to external financing. The choice before policymakers is clear: either continue firefighting or finally commit to the reforms that can turn policy paralysis into productive power.
The writer is a trade facilitation expert, working with the federal government of Pakistan.