Revitalizing Pakistan’s Export Landscape | Political Economy

ANDAmid the volatility of the global economy, Pakistan’s recent export performance has shown resilience and untapped potential. The decline in the current account deficit to $0.5 billion in fiscal year 2024, supported by the IMF stand-by arrangement and significant policy measures, marks a positive change in the country’s economic prospects.

The significant increase (9.3 percent) in exports indicates the need for strategic measures and continued efforts to strengthen the export sector. Historically, exports have been volatile, with periods of strong growth alternating with periods of decline.

There was significant progress in fiscal year 2024. Exports increased to a total of USD 23 billion. This increase can be attributed to a number of measures such as supply of RLNG at cost-effective rates, improving market access, setting up of EXIM Bank and implementing capacity development programmes for textile industry and trade groups.

Together, these efforts contributed to overall growth across the export sector, with the exception of textiles. Textiles faced challenges as a result of falling market demand and falling global prices.

A significant breakthrough in exports was a remarkable 48 percent increase in food exports, which reached $5.6 billion. This improvement was driven by increased productivity, better prices and higher global demand. Major exports, including cotton, leather and rice, continue to have a significant market share, accounting for 68.2 percent of total exports.

The Pakistan Regulatory Modernisation Initiative, managed by the Board of Investment, is a key measure to strengthen the investment ecosystem. The provision of Rs 5 billion for the Markup and Risk Sharing Scheme for Farm Mechanisation is a significant step towards improving food security and export potential, given that agriculture contributes 24 per cent to GDP and employs 37.4 per cent of the labour force.

The significant increase in the financing of the Export Refinance Scheme from Rs 3.8 billion to Rs 13.8 billion facilitated by EXIM Bank clearly demonstrated the government’s commitment to helping exporters. The export credit facility of Rs 539 billion provided by State Bank of Pakistan, especially for SMEs, is expected to play a pivotal role in improving future export performance. The introduction of the risk sharing scheme is an additional precautionary approach to reduce the difficulties faced by exporters.

The federal government’s active strategy to promote economic growth and address pressing economic challenges has resulted in the signing of 31 B2B cooperation agreements in the energy, culture, IT, pharmaceuticals, agriculture and food sectors.

It is important to remain focused on implementing reforms, developing infrastructure and supporting key sectors. Pakistan has the capacity to increase its exports, boost economic growth and improve international trade competitiveness.

The potential for sectoral growth, job creation and economic diversification in these partnerships is enormous. However, their effectiveness depends on the successful implementation of policies, political stability and comprehensive economic reforms. To ensure that these MOUs deliver tangible economic benefits to the country, it is essential to address fundamental issues.

In addition, it is crucial to implement measures focusing on expanding digital infrastructure, promoting industrial growth in agriculture-related industries, and improving research and development in science and technology. Such adjustments must be made to promote innovation and increase competitiveness.

The tax changes, which include increasing the GST rate on textiles and leather for first-tier stores from 15 per cent to 18 per cent, represent a balanced strategy to increase revenues while supporting key export sectors.

The GST hike has the potential to increase government revenues, which is necessary to address the fiscal deficit and maintain public goods and services. The higher GST rate will ultimately increase costs for retailers, which could be passed on to consumers, leading to inflated prices for end products. This could increase inflationary pressures and reduce consumer purchasing power, especially in a sector that is key to employment and exports.

The exemption for imported goods in the solar panel sector indicates a forward-looking approach focused on solving the energy crisis and promoting the use of renewable energy sources. This is in line with global environmental sustainability goals.

While this can reduce installation costs and increase competitiveness in domestic and potentially international markets, its success depends on effective implementation, support for local production and management of technical challenges such as infrastructure development and international trade dynamics. Ensuring transparent procedures and avoiding dependence on imported technology is crucial to long-term sustainability and economic viability in the sector.

However, the decision to discontinue tariff cuts for domestic car manufacturers should be carefully considered to prevent negative impacts on the competitiveness of local production.

The recent increase in exports is a sign of positive strategic results and carefully planned policy actions. To sustain and further develop this progress, it is important to maintain the focus on implementing reforms, developing infrastructure and providing assistance to key sectors. Pakistan has the capacity to increase its exports, boost economic growth and improve international trade competitiveness by creating a favorable business climate and addressing fundamental issues.

The author is a project assistant at the Centre for Private Sector Engagement. She lives in Islamabad.