Major impediments to export boost

EDITORIAL: Commerce Minister Jam Kamal Khan while briefing the Senate Standing Committee correctly noted that unless exporters were provided a conducive business environment, defined as not only appropriate domestic policies but also the prevailing international market conditions, Pakistan’s exports would not rise.

There is overwhelming evidence that monetary and fiscal policies agreed with the International Monetary Fund (IMF) under the ongoing Extended Fund Facility (EFF) programme - scheduled for completion in September 2027 - are serious impediments to growth in general and private sector growth in particular and include: (i) a policy rate of 11.5 percent that is more than double that of other regional competitors, including India and China, (ii) fiscal policy with the overarching objective to enhance government revenue, which has implied continuing reliance on customs duties that are negatively impacting on raw material imports critical for the manufacture of our major exports, and (iii) the administrative measures that have been agreed with the Fund require the government to meet the condition of full cost recovery on utilities like electricity and gas which, in turn, has implied ever-rising costs for exporters that are uncompetitive regionally.

It is noteworthy that the incentives that were almost routinely extended to the manufacturing sector, including exporters; notably, lower borrowing costs, zero rating for the country’s five major exports, and cheap tariffs (electricity), were not supported by the Fund, which provided impeccable logic in its October 2024 documents that approved the EFF: “Subsidies have taken the form of low-cost financing and other concessions, which although varied across industries, left financing and taxes net of subsidies more favourable than in peer economies and less-favoured sectors.

The tax system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones (SEZs).

The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors.

Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”

There is no doubt that none of these policy decisions falls within the purview of the Commerce Ministry and the key stakeholders remain the Finance Minister and the Governor State Bank of Pakistan who sign off on the Letter of Intent, detailing pledges in terms of fiscal and monetary policies till the next quarterly review.

In this instance, it is relevant to note that the Fund team is scheduled to begin talks on the fourth review sometime next month, whose success would enable the Board to approve the next tranche release, and there are some concerns that the Fund may insist on the same monetary and fiscal policies that may compromise growth and our exports.

This projection does not take account of the international recession wrought on by the Middle East conflict, and the choking-off of the Strait of Hormuz shipping traffic, accounting for not only plummeting exports to the Gulf countries but also a decline in demand for our largely consumer-based exports. It is unclear whether the US will go forward with its secondary sanctions against countries that continue to trade with Iran because in that case our exports through land would also suffer.

The Jam further noted that Commerce Ministry had suggested setting up a National Export Promotion Bureau; however, this may be as effective as the Commerce Ministry has been lately because the actual policy decisions would continue to be taken elsewhere – decisions that, at present, are only guided by the need to ensure the fourth staff level agreement as that would ensure that China and Saudi Arabia roll-over more than 10 billion dollars parked in our treasury for another year.

Copyright Business Recorder, 2026