Pakistan’s policymakers appear to be experimenting with a new strategy to revive exports at a time when the country faces significant economic pressures. For decades, export promotion — particularly for the textile sector — relied on generous subsidies, cheap energy, and concessional financing. Those incentives helped large exporters maintain competitiveness despite structural inefficiencies in the domestic economy.
However, the economic situation has changed dramatically over the past few years. Subsidies have largely been withdrawn, taxation has increased, energy prices have surged, and interest rates have climbed steeply. As a result, exporters have struggled to maintain momentum, and export growth has remained largely stagnant. In response, authorities are now trying a different approach: finding ways to lower costs without directly violating fiscal constraints or international commitments.
The latest measures suggest a more creative, albeit controversial, attempt to support export-led growth without explicit subsidies. Whether this strategy marks a turning point or simply a temporary workaround remains an open question. Historically, Pakistan’s export sector — especially large textile manufacturers — benefited from substantial government support. Exporters enjoyed discounted energy tariffs, concessional financing for both short-term and long-term investment, and relatively light taxation. These policies were designed to boost competitiveness and expand foreign exchange earnings.
Over time, however, these supports became increasingly difficult to sustain. Economic reforms, combined with agreements with the International Monetary Fund, pushed the government toward reducing fiscal distortions and improving transparency. Subsidies were gradually phased out, and exporters were brought into the standard tax net.
Unfortunately, these changes coincided with global and domestic shocks. International energy prices surged, while Pakistan’s own power sector inefficiencies drove costs even higher. At the same time, higher tax rates — including the super tax — increased business expenses, and rising interest rates made borrowing more costly. Compounding these challenges was weaker global demand for textiles, particularly in key importing markets.
The combined effect has been clear: exports have struggled to grow despite repeated declarations that export-led expansion remains a central policy goal.
Although the government has repeatedly emphasized export-led growth as a cornerstone of economic recovery, practical support measures were limited until recently. Large exporters continued lobbying for the return of earlier incentives, but policymakers faced tight fiscal space and strict conditions tied to stabilization programs.
Previously, subsidised export financing was provided by the State Bank of Pakistan, effectively involving money creation and risk transfer to the central bank’s balance sheet. Amendments to the SBP Act curtailed this approach, restricting direct quasi-fiscal interventions.
In response, the government introduced a modest 3 percent relief on working capital financing for exporters through a fiscal subsidy. Yet exporters argued that the support remained insufficient to offset rising operational costs. This pressure set the stage for a new and unconventional solution.
The latest move by the State Bank of Pakistan reflects what many observers describe as innovative financial engineering. The central bank reduced the cash reserve requirement (CRR) by 100 basis points, a step that releases additional liquidity into the banking system. Since the elevated CRR had originally been introduced to absorb excess liquidity, its reduction now appears consistent with current monetary conditions.
This decision is estimated to free approximately Rs300 billion, potentially generating an additional Rs30–35 billion in profits for commercial banks. Shortly afterward, the government announced a deeper concession under the Export Finance Scheme (EFS), reducing financing rates from policy rate minus 3 percent to minus 6 percent — effectively lowering borrowing costs for exporters.
Crucially, the additional cost is to be absorbed by banks rather than the fiscal budget. Interestingly, the estimated cost to banks — around Rs30 billion on existing financing — closely matches the gains they stand to receive from the CRR reduction. This has fueled speculation about a tacit alignment among policymakers, banks, and exporters to design support without explicit subsidies.
Alongside financing reforms, the government announced plans to end cross-subsidies embedded in industrial electricity tariffs and wheeling charges. Officials estimate this could reduce energy costs by around Rs4 per unit for industrial consumers. While the move is presented as fiscally neutral, the government has yet to clearly explain how the revenue gap will be managed.
For exporters dealing with high energy costs, this step could provide meaningful relief. Yet uncertainty remains about implementation and whether such measures can be sustained without placing pressure on public finances.
Despite being described as fiscally neutral, the new financing arrangement has sparked debate over the independence of the State Bank of Pakistan. Critics argue that such targeted interventions can distort credit allocation and influence lending behaviour in ways that compromise market efficiency.
Past experiences have also raised concerns. Several concessional schemes aimed at promoting exports were reportedly misused, forcing authorities to roll them back. A recent export facilitation program overseen by the Federal Board of Revenue faced similar challenges, highlighting the risks of weak monitoring and enforcement.
The central question now is whether regulators can ensure that concessional financing reaches genuine exporters rather than being diverted for other purposes. Without robust safeguards, the initiative could undermine both credibility and outcomes.
Another key critique centers on the nature of the support itself. The current scheme primarily lowers the cost of working capital, which may improve exporters’ profit margins rather than driving long-term growth. Some economists argue that concessional long-term financing would have been more effective, encouraging investment in technology, productivity improvements, and capacity expansion.
Still, supporters contend that immediate liquidity relief is necessary to keep exporters competitive amid global headwinds. With margins under pressure due to weak international demand and rising domestic costs, short-term financing relief could prevent further decline.
Pakistan’s latest export support measures represent a blend of creativity and compromise. Facing fiscal limitations and external oversight, policymakers have attempted to provide relief through monetary and regulatory adjustments rather than direct subsidies. The strategy may help exporters in the short term, but it also raises valid concerns about central bank autonomy, market distortion, and implementation risks.
Ultimately, the success of this approach will depend on whether it leads to genuine export expansion rather than merely boosting profits for existing players. Pakistan’s export sector needs not only cheaper financing but also structural improvements, long-term investment, and greater competitiveness in global markets. The coming months will reveal whether this “out-of-the-box” thinking becomes a sustainable policy model or another temporary experiment in a long history of export incentives.