Muhammad Asim Saddiqi 
Islamabad: World Bank has urged Pakistan to improve the existing unbalanced preferential trade agreements (PTAs) with 10 of its trading partners, ensure a market-based and flexible exchange rate, and ensure sustainable economic growth by reviving exports that have been declining for the past three decades through reforms in energy and other input costs.
In its policy report, the World Bank observed that almost all countries that have achieved rapid and sustainable economic growth have achieved this success by taking advantage of global markets, but Pakistan has failed to follow this path. The report said that the volume of exports has declined from 16 percent of gross domestic product (GDP) in the 1990s to only about 10 percent in 2024, while exports are largely dependent on low-value textiles and agricultural products, with economic growth largely dependent on debt- and remittance-driven consumption rather than sustainable growth in exports.
The Washington-based financial institution has asked Pakistan to adopt a flexible exchange rate to maintain export competitiveness and simultaneously reform tariffs.
According to the report, a deep and functional interbank market should be allowed to develop without intervention by the State Bank of Pakistan, with greater participation of various market players, including exporters, importers and foreign investors.
The World Bank further said that detailed data on interbank market transactions, volumes and participants should be made public and unnecessary central bank intervention should be gradually eliminated so that the exchange rate reflects real supply and demand.
According to the report, when the economy is booming, rising imports put pressure on foreign exchange reserves, especially when the exchange rate is artificially controlled, resulting in repeated balance of payments crises. This boom-bust cycle has damaged investor confidence, limited private investment and weakened the foundations of long-term growth.
It further stated that the root causes of weak export performance include serious problems with productivity and competitiveness, and that distortive policies such as high tariff barriers, high production costs and high prices for consumers have increased the cost of doing business and confined companies to local markets.
At the same time, unnecessary government regulations and the presence of more than 200 government agencies at the federal level have affected efficiency, hindered investment, and created an inequitable distribution of resources. Exporters face severe difficulties in accessing financial resources.
Moreover, the cost of customs management and logistics is very high, while the support provided by the government for accessing foreign markets is also inadequate, including negotiating trade agreements, establishing a system for complying with international quality requirements and promoting Pakistani exports abroad.
According to the report, all these factors have turned potential exports worth about $60 billion into ‘lost opportunities’, in this context. The World Bank has recommended a comprehensive package of reforms, which proposes to further deepen preferential and free trade agreements.
The World Bank has said that free or preferential trade agreements are crucial for strengthening competitiveness and market access, as they reduce trade barriers, address trade facilitation issues such as customs, quality and investment regulations, thereby creating a conducive environment for exporters.
However, in Pakistan’s case, these agreements have not proven effective and many opportunities have been missed.
The report said that Pakistan is currently a party to only 10 trade agreements, most of which are superficial and limited to tariff relaxation on a limited number of items.
The China-Pakistan Free Trade Agreement is relatively comprehensive, covering tariff, investment and trade facilitation areas, but the agreements with Malaysia, Sri Lanka and SAARC are limited in nature, as a result of which Pakistan has lagged behind its peers, which have integrated themselves into global value chains through deeper and broader agreements.
The report recommended that the government provide specialized training to enhance the capacity of the negotiation unit, ensure regular consultations with exporters and industry, and establish a system to monitor the implementation and performance of trade agreements.
The World Bank also advised that Pakistan explore the possibility of expanding existing bilateral agreements to services, investment and digital trade sectors to tap export opportunities in non-traditional markets (sub-Saharan Africa and Latin America).
The Bank welcomed recent tariff reforms but said they needed to be accompanied by a flexible exchange rate, a functioning Exim Bank of Pakistan, strong trade facilitation and broader structural reforms to bring about real improvements in export competitiveness.
The World Bank has further suggested that the capacity of the National Tariff Commission be enhanced to effectively enforce anti-dumping and countervailing measures and that trade negotiation efforts be focused on further tariff reductions with key and emerging markets.
