World Bank Warns Pakistan’s Export Crisis is Symptom of Deeper Economic Malaise, Urges Urgent Reforms

 The World Bank has issued a stark warning to Pakistan, stating that the country’s chronic export weakness is no longer a cyclical issue but a direct consequence of deep-seated structural failures. In a damning assessment, the international lender pinpointed inconsistent policies, distorted markets, and a persistent refusal to implement meaningful reforms as the core reasons behind an impending economic breakdown.

The report, cited by The News International, serves as a critical diagnosis of an economy trapped in a cycle of low growth and external deficits. It urges the government to make a fundamental strategic shift from managing crises to fostering a competitive, export-oriented economy.

A Legacy of Decline: Pakistan Loses Its Footing

The World Bank’s analysis reveals a dramatic decades-long decline in Pakistan’s export prowess. In the 1990s, exports constituted a healthy 16% of the nation’s GDP. By 2024, this share has plummeted to a mere 10%, painting a picture of an economy that has failed to keep pace with global dynamism.

This stagnation is thrown into sharp relief by the progress of regional peers. While Pakistan’s exports have languished, countries like Vietnam, Bangladesh, and India have executed strategic reforms to capture global market share, particularly in textiles and manufacturing. The Bank estimates that this policy failure has cost Pakistan a staggering $60 billion in potential exports—a lost opportunity that could have stabilized its foreign exchange reserves and fueled sustainable job creation.

The Core Prescriptions: A Triad of Essential Reforms

The World Bank’s report moves beyond diagnosis to prescribe a tough but necessary medicine, focusing on three critical areas:

1. The Exchange Rate Straitjacket
One of the most urgent calls is for a fully market-determined exchange rate. The report asserts that the State Bank of Pakistan’s (SBP) interventions in the interbank market create a “false equilibrium.” This practice, often pursued for short-term political stability, leads to an overvalued currency, making exports expensive and imports artificially cheap. The resulting cycles of “artificial growth followed by external crises” are deemed unsustainable. A flexible exchange rate, the Bank argues, is the cornerstone for encouraging exports, attracting foreign investment, and curbing speculative dollar hoarding. However, the transition is acknowledged to be politically painful, likely triggering short-term inflation.

2. The Crippling Cost of Doing Business
Pakistan’s competitiveness is severely undermined by exorbitant energy and input costs. The report highlights that industrial power tariffs in Pakistan are nearly double those of competitors like Bangladesh and Vietnam. A complex web of heavy surcharges, cross-subsidies to other sectors, and embedded taxes makes domestic manufacturing unviable. This energy crisis is compounded by power outages, slow tax refund mechanisms, and bureaucratic red tape, creating a hostile environment for exporters.

3. Ineffectual Trade Agreements
Despite having 10 bilateral and regional trade deals, Pakistan has failed to leverage them for meaningful market access. The report scrutinizes these agreements, noting that most are outdated and underutilized. The China-Pakistan Free Trade Agreement (CPFTA) is identified as the only pact with depth, yet its benefits have disproportionately favored China, widening the trade deficit. Agreements with other regional partners remain limited in scope. The World Bank attributes this failure to a lack of technical expertise within Pakistan’s negotiation teams and a critical absence of consultation with the private sector, resulting in deals that are strong on paper but weak in practice.

The Systemic Bottleneck: A Bloated State Crowding Out Growth

Beyond these immediate issues, the report identifies a more profound problem: the overwhelming footprint of the state itself. With over 200 federal state-owned enterprises (SOEs)—many chronically loss-making—and an intrusive bureaucracy, the private sector is “crowded out.” These SOEs drain public finances through endless subsidies, diverting scarce resources from vital public investments in infrastructure, health, and education.

The report notes that plans for privatization, regulatory simplification, and governance reform have been discussed for years but consistently shelved due to “political resistance and vested interests,” creating a powerful inertia that benefits a few at the expense of the many.

A Crossroads for Pakistan

The World Bank’s message is clear: Pakistan stands at a critical economic crossroads. Continuing with ad-hoc measures and half-hearted reforms will only deepen the crisis. The path to recovery requires confronting powerful interest groups, embracing market-driven policies, and making a unwavering commitment to a private-sector-led export model. The $60 billion export gap is not just a lost opportunity—it is a measure of the prosperity and stability that Pakistan must now urgently reclaim.

 

 

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