Dr Manzoor Ahmad is a member of the Prime Minister’s Steering Group on Tariff Reforms. Previously he has served as Pakistan’s ambassador to the World Trade Organisation (WTO).
I put the following questions to him about Pakistan’s inability to adopt an export promotion strategy.
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Ahmad Faruqui: Why has Pakistan not adopted export promotion as its primary economic strategy? The Asian Tigers have shown that export promotion is far superior to import substitution.
Manzoor Ahmad: Pakistan did not pursue export promotion as its primary strategy largely because of the absence of consistent and visionary leadership committed to long-term reforms. In countries like India under Manmohan Singh or Turkey under Turgut Özal, strong reform-minded economists remained in policymaking roles long enough to push through market-opening measures. In contrast, Pakistan’s policy direction has often shifted with political cycles, preventing continuity. Most of Pakistan's academia and press favour import substitution policies, focusing more on the trade balance than on the positive effects of overall trade performance. Similarly, the bureaucracy has traditionally been inward-looking and risk-averse, preferring the comfort of import substitution over the uncertainties of global competition.
"Countries like Bangladesh, Cambodia, and Vietnam deliberately focused on moving up the value chain into apparel and other higher value–added products, while Pakistan remained concentrated in lower value textiles"
AF: Why does Pakistan continue to export low value added items?
MA: There are several reasons. First, Pakistan is not well integrated into global value chains and therefore does not significantly incorporate foreign inputs into its exports. Second, higher value–added sectors such as electronics and engineering goods are heavily protected, making it more profitable for manufacturers and assemblers to cater to the domestic market rather than compete internationally. Third, Pakistan is not part of any major trading bloc, which makes it challenging to comply with the diverse standards required in different countries. Finally, global competition in higher value–added products is far more intense, while Pakistan’s exporters have found it easier to operate in relatively less competitive, lower value segments.
AF: Even in textiles and apparel, Pakistan seems to have lost out to countries such as Bangladesh, Cambodia and Vietnam, which were not well established in those industries until recently. Pakistan was a global leader in those industries a couple of decades ago.
MA: Before 2005, Pakistan benefited from export quotas in major markets. Once these quotas were abolished under WTO rules, Pakistan faced tougher competition from emerging exporters like China and Vietnam, which had far higher productivity. Secondly, countries like Bangladesh, Cambodia, and Vietnam deliberately focused on moving up the value chain into apparel and other higher value–added products, while Pakistan remained concentrated in lower value textiles as it had access to domestic cotton and found it easier to convert it into towels and bed linen instead of producing more value-added products such as apparel. Third, its major competitors like Bangladesh and Cambodia benefited from duty-free access to major developed markets as Less Developed Countries (LDCs), which gave them a significant cost advantage. In addition, Bangladesh integrated economically with India, and Cambodia and Vietnam became part of ASEAN, gaining preferential access to regional and global markets. Pakistan, by contrast, remained relatively isolated and did not capitalise on similar opportunities. Finally, Pakistan has been having serious energy issues as its electricity rates are much higher than the competing countries.
AF: Pakistan's exports are consistently lower than its imports. The balance of trade is always in the red. What can be done to change that equation?
MA: Pakistan’s major imports are energy and edible oil, which are essential and largely unavoidable. Like many developing countries, Pakistan runs trade deficits until it reaches a stage of industrialisation where it can export more high value–added goods. In the short term, options are limited, but over the medium term, the priority should be to reduce dependence on imported energy by tapping into the country’s significant hydroelectric and solar potential, as it has started doing. It is also undertaking tariff reforms to allow cheaper imports of inputs and capital goods which should improve its productivity. If Pakistan can resolve its energy crisis by lowering the cost to the regional level, it would become much more competitive.
AF: Pakistan's remittances exceed its exports, and that can result in a surplus in the current account. However, that does not appear to be a sustainable strategy. Do you agree?
MA: Yes, relying primarily on remittances is not a sustainable strategy for ensuring external sector stability. While remittances provide valuable short-term support to the current account and ease budgetary pressures, they are not a reliable driver of long-term growth. They depend heavily on external labour markets and migration policies, factors over which Pakistan has limited control.
By contrast, sustained export growth, particularly in higher value–added sectors, is a more durable solution. Most successful developing economies have focused on expanding and diversifying their export base, integrating into global value chains, and enhancing competitiveness. For Pakistan, this means moving beyond traditional low value–added exports, investing in technology and skills, and negotiating better market access. Remittances may provide temporary relief, but export-led growth is the only path to long-term economic resilience and a sustainable current account balance.
AF: What can be done to reduce Pakistan's international debt?
MA: In terms of GDP, Pakistan’s debt burden has declined somewhat, but the real challenge is to reduce it in absolute terms. This requires not only curbing unproductive expenditures—such as containing non-development spending, including on defence—but also prioritising investments that generate sustainable returns.
The most effective way to reduce debt is through faster economic growth driven by higher exports, increasing domestic savings and foreign investment. Expanding export capacity, diversifying into higher value–added sectors, and integrating into global value chains would increase foreign exchange earnings and ease repayment pressures. At the same time, domestic resource mobilisation must be improved through better tax collection, broadening the tax base, and reducing reliance on borrowing to finance fiscal deficits.
In short, debt reduction will require a combination of prudent expenditure management, export-oriented growth, stronger domestic revenues, and structural reforms to enhance productivity and competitiveness.
AF: For how long will the economy survive on foreign aid from international lending agencies and the Gulf countries?
MA: Pakistan's long-term survival requires building self-reliance by expanding exports at a sustained double-digit pace and curbing major non-productive imports, including excessive spending on security-related equipment and luxury consumption items. Self-reliance does not mean isolating itself from the global markets but enhancing it further. Pakistan’s current trade-to-GDP ratio is less than 30% or amongst the lowest in the world. It needs to bring it up to at least the global average of over 60%. Equally important is diversifying the export base into higher value–added goods and services, improving competitiveness through investment in technology and skills, and integrating more effectively into global value chains. On the domestic front, strengthening tax revenues, promoting energy self-sufficiency, and attracting foreign direct investment are essential to reduce dependence on external financing. In short, Pakistan will only move beyond perpetual reliance on aid when it shifts from a consumption-driven model to a production- and export-led growth strategy backed by fiscal discipline and structural reforms. Being a small economy, it needs to be more integrated regionally as well as globally.