World Bank Warns Pakistan: Self-Inflicted Export Crisis Risks Economic Collapse

In its latest assessment, the Bank says Pakistan’s weak exports are caused by inconsistent policies, distorted markets and a constant failure to reform, according to a report by The News International.

It urges the government to adopt a market-based exchange rate, cut high energy and input costs, and overhaul trade agreements that have brought little benefit.

According to the report, Pakistan’s export performance has sharply declined over the decades. In the 1990s, exports made up about 16 per cent of GDP.

By 2024, this figure had dropped to just 10 per cent, even as countries like Vietnam, Bangladesh and India made major gains. The World Bank estimates that Pakistan is losing out on nearly $60 billion worth of potential exports because of poor policies and governance gaps.

One of the biggest issues highlighted in the report is Pakistan’s exchange rate system. The Bank has called for a fully market-determined exchange rate, saying the State Bank of Pakistan should stop intervening in the interbank market.

It argues that as long as the exchange rate is controlled for political reasons, Pakistan will continue to face cycles of artificial growth followed by external crises. A flexible exchange rate, it says, will encourage exports, attract foreign investors and reduce speculation around the dollar.

However, such a shift requires political courage, as it may cause short-term inflation.

The World Bank has also criticised Pakistan’s high cost of doing business, especially due to expensive electricity and rising input prices. Industrial power tariffs in Pakistan are nearly double those in countries that compete with it, such as Bangladesh and Vietnam.

Heavy surcharges, cross-subsidies and taxes make matters worse, pushing industries away from global competition.

The report also points to problems within Pakistan’s manufacturing sector. Exporters struggle with high costs of imported inputs, slow tax refunds, power outages and bureaucratic hurdles. These issues collectively weaken the country’s export competitiveness.

Pakistan’s trade agreements have also come under scrutiny. The country has 10 bilateral and regional trade deals, but most are outdated and underutilised. The China-Pakistan Free Trade Agreement is the only one with any real depth, yet even it has favoured China more.

Agreements with Malaysia, Sri Lanka and regional partners remain limited in scope. The Bank says Pakistan’s trade negotiators lack technical skills and industry consultation, resulting in agreements that look good on paper but offer little practical value.

It has advised the government to strengthen its trade negotiation teams and consult businesses more closely, as per the report.

The report also highlights the burden of Pakistan’s oversized state machinery. With more than 200 federal state-owned enterprises and heavy bureaucratic involvement, the private sector is often crowded out.

Privatisation, regulatory simplification and governance reforms have been repeatedly discussed but never implemented due to political resistance and vested interests, the report stated.

- IANS