The World Bank latest report paints a concerning picture of Pakistan’s industrial stagnation, directly linking the country’s declining export competitiveness to its complex web of import tariffs. Over the past decade, Pakistan’s tariff structure has ballooned to include multiple layers of regulatory and additional customs duties, creating an effective trade barrier that ranks among the highest in South Asia. This protectionist approach has inadvertently sheltered inefficient domestic industries while making Pakistani exports increasingly uncompetitive in global markets.
Pakistan’s export performance tells a troubling story of missed opportunities. Once accounting for 15% of GDP in the 1990s, exports have dwindled to just 10% of GDP – the lowest ratio in the region. The report highlights how these restrictive trade policies have distorted investment patterns, diverting capital away from productive sectors and toward protected industries with political connections. This has created an economic environment where rent-seeking behavior thrives at the expense of genuine industrial competitiveness.
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The World Bank’s recommendations call for sweeping reforms to reverse this downward trend. Key proposals include simplifying the multi-slab tariff structure, eliminating regulatory duties, and implementing a market-driven exchange rate system. These measures aim to reduce input costs for export industries and encourage Pakistan’s integration into global value chains. The report particularly emphasizes the need to improve the business climate through better bankruptcy laws and the establishment of a National Regulatory Delivery Office.
Industry-specific analysis reveals how high effective protection rates – reaching up to 300% for some products – have made sectors like textiles, pharmaceuticals and automotive increasingly uncompetitive internationally. While these policies may have provided short-term protection for domestic producers, they’ve ultimately constrained Pakistan’s export potential. The World Bank suggests that following the examples of Bangladesh and Vietnam, which transitioned to export-oriented industrialization, could help Pakistan revive its manufacturing sector.
As Pakistan engages in ongoing IMF negotiations, these findings are likely to influence discussions about the country’s next economic adjustment program. While tariff rationalization may present short-term challenges for protected industries, economists estimate it could boost Pakistan’s exports by $8-12 billion annually within five years. The report serves as both a warning and a roadmap for Pakistan’s industrial policy, emphasizing that in an increasingly interconnected global economy, protectionism often protects inefficiency rather than promoting growth.
