How Pakistan lost three decades while its neighbours rewrote the rules of global trade

Pakistan’s export story is one of extraordinary promise undermined by decades of policy inconsistency. Once regarded as one of Asia’s fastest-growing economies, Pakistan has gradually lost its competitive edge while countries that once lagged behind have emerged as global export powerhouses.

During the 1960s, Pakistan was universally acclaimed as an “Asian Tiger”. The country exported value-added manufactured goods, including small ships to China, while importing raw materials for processing. Large-scale manufacturing expanded by 10-16% annually, agriculture grew around 5%, and gross domestic product (GDP) growth averaged above 7%. Even the 1965 war with India failed to derail economic momentum. Strong institutions, disciplined planning, and continuity in policymaking under the Planning Commission chaired by the President Ayub Khan, drove rapid industrialisation, green revolution and export growth.

The trajectory changed dramatically in the 1970s. Nationalisation and a shift toward a state-controlled economic model weakened private-sector confidence, discouraged investment, triggered capital flight, and slowed GDP growth to below 4%. Political patronage increasingly replaced merit in public institutions, eroding governance and administrative efficiency. These structural weaknesses have continued to haunt Pakistan’s economy.

Bangladesh now exports more than $55 billion, Vietnam exceeds $400 billion, while Pakistan continues to struggle around $30-35 billion.

The 1980s witnessed a partial recovery. Deregulation, strong agricultural performance, rising remittances, and the completion of Tarbela dam restored economic growth to around 6.5% annually. Pakistan achieved self-sufficiency in major food crops except edible oil and regained economic momentum.

By the early 1990s, Pakistan remained South Asia’s leading exporter after economic liberalisation and privatisation. The closure of inefficient state trading enterprises, including the Cotton Export Corporation and Rice Export Corporation of Pakistan, enabled private exporters to flourish. At that time, Pakistan’s exports exceeded those of Bangladesh and Vietnam combined, with exports nearly four times larger than Bangladesh’s and over three times Vietnam’s.

Three decades later, the picture has reversed. Bangladesh now exports more than $55 billion, Vietnam exceeds $400 billion, while Pakistan continues to struggle around $30-35 billion.

Even Cambodia, despite its much smaller GDP economy, has recorded double-digit export growth through consistent policies, trade diversification, and free trade agreements. Cambodia offers an important lesson. Its exports grew by nearly 17% in 2025 and continued expanding strongly in 2026, driven by garments, footwear, agricultural products, rice, rubber, and travel goods. Cambodia’s access in the Regional Comprehensive Economic Partnership (RCEP), along with bilateral free trade agreements (FTA) with China, South Korea, and the UAE, has significantly expanded market access. The country’s experience demonstrates that policy consistency often matters more than economic size. FTAs with efficient economies prove beneficial, increasing exports only if a country has access to the regional trading blocs.

China’s transformation is equally instructive. Before Deng Xiaoping’s reforms in 1978, China remained largely isolated from global markets. Four decades of market liberalisation, export-led industrialisation, foreign investment, and WTO accession transformed it into the world’s largest exporter, with annual exports exceeding $3.5 trillion. The lesson is simple: competitiveness is built through sustained reforms, tariff free imports of raw materials, semi-finished goods to add value addition, and freely import re-export without EPZ, DTRE, EFS, or DLTL subsidies at port.

Pakistan’s export underperformance is not caused by a shortage of resources or entrepreneurial talent. It reflects inconsistent policies, high production costs, institutional weaknesses, and an economic model driven by consumption rather than productivity. Governments have relied on borrowing, remittances, and import-led growth instead of building a competitive export base.

Vietnam diversified into electronics, machinery, furniture, and smartphones. Bangladesh expanded beyond garments into ship building, pharmaceuticals, leather products, and information technology. Pakistan, by contrast, still exports relatively low-value products while importing higher-value manufactured goods.

Macroeconomic policy has also worked against exporters. Contradiction between monetary and expansionary fiscal policies, stimulatory budgets, expanding government’s spending ignites domestic demand that local industry often cannot meet, increasing imports and widening the trade deficit. Simultaneously, tight monetary policy and high interest rates discourage industrial investment, particularly in export-oriented sectors as trading at domestic market is highly profitable, less tax burdened. The predictable outcome is foreign exchange shortages followed by recurring IMF programmes.

The cost of doing business, largely dependent on byroad transportation remains among the highest in the region. Expensive electricity due to capacity payments, high financing costs, multiple taxes, cumbersome documentation, regulatory uncertainty, inefficient logistics, no waterways transportation of goods, and port congestion have steadily eroded Pakistan’s competitiveness. How our exporters can compete globally while facing significantly higher production costs than regional rivals.

Equally damaging is Pakistan’s narrow export basket. Textiles and rice continue to dominate merchandise exports despite changing global demand. Vietnam diversified into electronics, machinery, furniture, and smartphones. Bangladesh expanded beyond garments into ship building, pharmaceuticals, leather products, and information technology. Pakistan, by contrast, still exports relatively low-value products while importing higher-value manufactured goods.

Agriculture highlights another structural weakness. Increasing production alone cannot boost exports if imported seeds, fertilisers, and other inputs make Pakistani products more expensive than competing origins. Future growth lies in value-added food processing, agro-industrial products, and compliance with international quality and sanitary standards rather than exporting bulk commodities.

Export financing also requires reform. The State Bank’s Export Refinance Facility (ERF), originally designed to encourage value-added exports, has increasingly benefited a limited number of large commodity exporters. Small- and medium-size enterprises (SMEs), despite accounting for over 90% of businesses, around 30% of GDP, and most private-sector employment, continue to face limited access to affordable finance, technology, and export marketing support. Sustainable export growth is impossible without integrating SMEs into global value chains.

Institutional accountability is equally important. Organisations responsible for trade promotion should be evaluated against measurable outcomes such as export growth, market diversification, and the creation of new exporters rather than the number of conferences, foreign visits, or policy papers produced.

Perhaps Pakistan’s greatest weakness is policy uncertainty. Export incentives are introduced and withdrawn, tax regimes change frequently, refund payments remain delayed, and exchange-rate policies fluctuate. Long-term manufacturing investment requires stability, yet policy certainty in Pakistan rarely extends beyond a single budget cycle.

Despite these shortcomings, Pakistan retains significant advantages. Its strategic location, young workforce, abundant agricultural resources, entrepreneurial talent, and preferential access to European markets provide a strong foundation for export-led growth. These strengths, however, remain underutilised because structural reforms are repeatedly postponed.

The policy agenda is well known. Pakistan must reduce energy costs, rationalise import tariffs on industrial inputs, simplify the tax system, eliminate unnecessary withholding taxes on exporters, tax income, expand affordable financing for SMEs, modernise ports and customs, attract export-oriented foreign investment, diversify into engineering goods, pharmaceuticals, electronics, and value-added agriculture, strengthen vocational training like Bangladesh did, and negotiate trade agreements that expand exports rather than merely increase imports of consumer goods.

History offers a clear verdict. Countries that once looked to Pakistan as a model have overtaken it through consistent policies, competitiveness, and long-term commitment to exports. Pakistan cannot continue financing growth through borrowing and remittances while neglecting productive capacity.

Export growth is not merely an economic target; it is essential for employment, foreign exchange earnings, currency stability, and national economic security. Pakistan still possesses the resources and talent to reverse decades of decline, but the window of opportunity is narrowing. Unless exports become the central pillar of economic policy, the country will remain trapped in recurring balance-of-payments crises, dependent on external assistance instead of generating sustainable prosperity through international trade.