The country’s trade deficit increased by 18.1 per cent to $7.1 billion during the first two months of the current fiscal year, as imports continued to rise while exports remained largely stagnant. It points to a fundamental weakness in Pakistan’s external sector: exporters are operating in an increasingly expensive environment while struggling to compete in international markets.
The rising cost of doing business as a major constraint on export growth. A policy rate that remains higher than those of regional competitors, expensive and unreliable energy supplies, and increased taxation on petroleum products all add directly to production costs. These structural disadvantages ultimately appear in the prices quoted by Pakistani exporters, making their products less competitive against suppliers from countries facing lower financial and energy costs.
Yet the export problem cannot be explained by high domestic costs alone. The deeper challenge lies partly within the export sector itself.
For decades, Pakistan has relied heavily on textiles and apparel, but the composition of these exports has changed remarkably little. While competing economies have moved towards higher-value products and diversified their export bases, Pakistan has remained heavily dependent on traditional textile products and other relatively low-value commodities.
Bangladesh offers an instructive comparison. It has strengthened its position in higher-value garments while simultaneously expanding into areas such as pharmaceuticals and light engineering. Pakistan, by contrast, continues to export substantial quantities of yarn, grey cloth, low-end made-ups and other commodities that generate limited value compared with finished, branded or technologically sophisticated products.
Value addition has long been recognised as the obvious route out of this trap. However, much of the manufacturing sector has failed to make the necessary transition. Producing finished goods requires investment in modern machinery, product development, skilled professionals, branding and international marketing. It also involves greater commercial risks and longer-term investment horizons. Many businesses have preferred the relative ease and higher pricing power of the domestic market, where competition is often less intense and regulatory and marketing demands are different.
This approach may make sense from the perspective of an individual business seeking to maximise short-term returns. Collectively, however, it has weakened Pakistan’s export base and left the country vulnerable to shifts in international demand.
Market concentration presents another serious problem. Exporters that have spent decades relying on the same products and a limited number of markets have little bargaining power when demand weakens. They also have few alternatives when a particular market becomes less accessible because of changing regulations, geopolitical tensions, economic downturns or stronger competition.
Diversifying both products and markets requires investment. Companies must spend on market research, product development, international marketing, compliance and customer relationships before the benefits become visible. Pakistani businesses have generally been reluctant to bear these costs, particularly when the domestic market offers opportunities for relatively high margins without the complexities of international competition.
The structure of many exporting companies is another obstacle. A large proportion of businesses remain family-owned and family-managed, with limited in-house expertise in international marketing, product design, regulatory compliance and modern corporate management. Professionalising these functions would require business owners to hire outside expertise and, in some cases, surrender a degree of direct control.
Few owners have shown sufficient willingness to make that transition.
The reluctance to embrace corporatisation is particularly striking when exporters themselves identify high borrowing costs as a major impediment to investment. If bank financing is too expensive, companies have another potential source of capital: equity markets. Equity financing does not carry the same interest burden as bank borrowing and can provide businesses with the capital needed for expansion, technology upgrades and diversification.
Yet relatively few Pakistani companies have shown enthusiasm for listing on the stock exchange. The reasons are not difficult to understand. Going public requires greater financial transparency, regulatory scrutiny, professional governance and the sharing of ownership and profits beyond the founding family. For some businesses, these requirements may be inconvenient; for others, they may expose weaknesses in financial reporting, governance or overall business viability.
This reluctance suggests that the export sector’s problems cannot simply be placed at the government’s doorstep. Policymakers undoubtedly need to address the structural costs that undermine competitiveness. Lower and more predictable energy costs, a competitive interest-rate environment, rational taxation and a stable regulatory framework are essential if Pakistani exporters are to compete successfully in global markets.
But businesses must also confront their own weaknesses.
Pakistan needs an export sector that is more diversified, more technologically sophisticated and more professionally managed. Companies must move beyond low-value products, invest in research and development, build international brands and develop expertise in global marketing and compliance. They must also be willing to explore new markets instead of relying indefinitely on traditional buyers.
The challenge, therefore, is two-sided. The government must create an economic environment in which exporting is commercially viable, while the private sector must demonstrate a greater willingness to invest, innovate and modernise.
Pakistan cannot sustainably increase exports simply by asking exporters to produce more under the same conditions. Nor can businesses expect government concessions to compensate indefinitely for outdated products, concentrated markets and weak corporate structures.
The country’s export crisis ultimately requires a change in both policy and business culture. The government must remove structural barriers to competitiveness, while industry must embrace value addition, diversification and corporatisation. Without progress on both fronts, Pakistan risks remaining trapped in a low-value export model while regional competitors continue moving up the global value chain.