• Urges govt to ensure market-determined, flexible exchange rate
• Calls for deeper reforms to cut energy, input costs
ISLAMABAD: The World Bank has asked Pakistan to improve its skewed preferential trade agreements with 10 bilateral partners, ensure a market-determined and flexible exchange rate and push deeper reforms to lower energy and other input costs to turbocharge over three decades of declining exports for sustainable economic growth.
In a policy advice to the government, the bank observed that nearly all countries that have achieved rapid and durable growth have done so by tapping into global markets, but Pakistan has struggled to follow this path.
“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,” it said, adding that economic upturns had been fuelled instead by debt and remittance-financed consumption, rather than export dynamism.
The Washington-based lending agency has asked Pakistan to maintain a flexible exchange rate to ensure export competitiveness and complement tariff reform.
“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.
It also demanded the publication of detailed data on interbank market transactions, including volumes and participants and phase out ad hoc interventions by the central bank, allowing the exchange rate to reflect genuine supply and demand.
It noted that as growth accelerates and is fuelled by higher imports, foreign exchange reserves are strained, particularly when the exchange rate is tightly managed, triggering recurrent balance-of-payment crises. This cycle of boom and bust has undermined investor confidence, constrained private investment and eroded the foundations of long-term sustainable growth.
Underlying this weak export performance are deep-seated productivity and competitiveness challenges, it said. Distortionary policies, such as high tariff barriers, increased input costs and consumer prices, driving up production costs and encouraging firms to focus on protected local markets.
Simultaneously, excessive and redundant red tape and regulation, and a heavy state presence in the economy (including more than 200 state-owned enterprises at the federal level) have undermined efficiency, deterred investment, and distorted resource allocation, as exporters face major constraints on access to finance.
On top of that, the costs of customs management and logistics are high, and government-supported measures to assist firms in accessing foreign export markets have often been insufficient, including in negotiating trade deals, establishing a system to support
export market compliance, and promoting Pakistan’s exports abroad.
Therefore, fundamental constraints to firm productivity remain unaddressed, including the exorbitant cost of electricity and limited access to core digital infrastructure.
“In combination, these challenges have led to missing exports of close to $60 billion,” the World Bank said and advised a large set of reforms, including deepening preferential free trade agreements for expanding markets.
The bank said free or preferential agreements with other countries serve as a critical lever for strengthening competitiveness and market access by reducing barriers and addressing trade facilitation issues, such as customs procedures, standards and investment integration, thereby creating an enabling environment for exporters to expand and diversify.
But these agreements, in the case of Pakistan, remained underutilised, leading to missed opportunities. “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 covers a larger share of areas, including tariffs, investment and trade facilitation, while agreements with Malaysia, Sri Lanka and the South Asian Free Trade Agreement remain partial in scope,” the bank pointed out. This leaves Pakistan behind its aspirational peers, which leverage a greater number and depth of agreements to embed themselves in global value chains and attract investment. “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 asked the government to enhance the capacity of the negotiation unit through targeted training, ensure regular consultations with exporters and industry to align agreements with business opportunities and establish mechanisms to monitor implementation and performance of trade agreements.
It also suggested active exploration of avenues to upgrade existing shallow preferential trade agreements towards deeper agreements covering services, investment and digital trade, including those with non-traditional export markets in regions with export potential, such as Sub-Saharan Africa and Latin America.
The bank welcomed recent tariff reforms but said they needed to be complemented by a flexible exchange rate, full operationalisation of the EXIM Bank of Pakistan, stronger trade facilitation and broader structural reforms to boost export competitiveness. The World Bank called for capacity building of the National Tariff Commission to monitor, evaluate and implement anti-dumping and countervailing measures to protect against unfair trade practices and focus on trade negotiation efforts on further tariff reductions with key and emerging trade partners.
Published in Dawn, November 3rd, 2025
