Pakistan’s exports as share of GDP shrinking: World Bank

ISLAMABAD: The World Bank has warned that Pakistan’s exports as a share of GDP are declining and they are substantially below potential, revealing an untapped export potential of nearly USD 60 billion. The Bank cited high tariffs, cumbersome regulations, costly energy, and logistics as key factors constraining the country’s exports.

In its report “Pakistan Development Update,” the World Bank stated that since 2000, exports as a share of GDP have steadily declined from an average of 16 percent in the 1990s to just around 10.4 percent in 2024, leaving growth dependent on debt and remittance-driven consumption which underlies Pakistan’s recurrent boom-bust cycles.

Pakistan’s export performance once outpaced Bangladesh and India, but today it lags both countries and is below the low- and middle-income country (LMIC) and upper middle-income country (UMIC) averages. This decline has happened against the backdrop of a widening exports gap, i.e., the difference between actual exports and Pakistan’s export potential.

World Bank downgrades Pakistan’s growth projection to 2.6pc

Taking account of core economic characteristics such as population, level of development, and proximity to major markets, current estimates suggest an untapped export potential of close to USD 60 billion. Closing this gap would put Pakistan on par with the average of UMICs but would require the current export share in GDP to double, the Bank added.

The Bank calls for broader measures including a market-determined exchange rate, stronger trade finance, improved logistics and compliance, deeper trade agreements, and expanded digital and energy infrastructure to drive export-led growth, including in emerging IT services exports.

The Bank recommended for allowing the emergence of a deep and liquid interbank market without the State Bank of Pakistan (SBP) intermediation and encourage greater participation from a diverse range of market players, including exporters, importers, and foreign investors, publish detailed data on interbank market transactions, including volumes and participants and phase out ad hoc interventions, allowing the exchange rate to reflect genuine supply and demand.

With exports volume growth slowing, prices have played a larger role in driving exports rather than quality or innovation, leaving Pakistan highly exposed to swings in global prices. This slowdown has been accompanied by persistently low and stagnant levels of market access and product diversification—two critical markers of export dynamism.

Under the fiscal year 2026 budget, the government approved a five-year National Tariff plan that outlined a reform path for tariff reductions that would reduce the simple average tariff from 20.2 percent to 9.7 percent by 2030. The scale of the approved reform would place Pakistan among the most ambitious tariff reformers globally. If fully implemented, Pakistan would be ranked in the five most ambitious LMIC reformers alongside Vietnam and Cambodia, and among the top 10 worldwide in terms of the size of tariff reduction over the past two decades.

The report also noted that while digitally delivered exports have increased to around 10 percent of total exports, Pakistan’s share in globally delivered digital exports remains low at just 0.1 percent, says the World Bank.

Pakistan currently captures only 0.1 percent of digital services global market, lagging comparators such as India (5.8 percent) and Indonesia (0.2 percent). Even within strong gains in IT services exports, where Pakistan is the second-largest exporter in South Asia (after India) with more than US$2.9 billion in annual exports, its global share remains just 0.3 percent, underscoring the scale of untapped potential.

The report noted that even with significant progress in the information technology (IT) and digital space in Pakistan, exporters still face uneven, low-quality, and costly broadband, with average speeds among the lowest in the region and wide disparities across districts.

Existing infrastructure gaps around low coverage of fiber optic networks are compounded by a weak digital regulatory environment, including fragmented approval systems for fiber expansion, low participation in digital trade negotiations, and restrictive content regulation.

“The government has placed export growth at the center of its development agenda and has made important strides in tackling policy and structural barriers, most recently through the approval of the National Tariff Policy, which will help lower costs for critical imported inputs,” said Anna Twum, co-author of the report. “However, tariff reforms alone will not suffice and must be complemented by broader measures to ensure a market-determined exchange rate, strengthen trade finance, enhance trade facilitation, and expand access to export markets.”

Copyright Business Recorder, 2025