World Bank warns Pakistan of looming economic breakdown without major reforms

NEW DELHI: The World Bank has issued a strong advisory to Pakistan, warning that the country's export crisis is no longer a temporary problem but the result of deep, long-standing structural flaws.

In its latest assessment, the Bank says Pakistan's weak exports are caused by inconsistent policies, distorted markets and a constant failure to reform, according to a report by The News International.

It urges the government to adopt a market-based exchange rate, cut high energy and input costs, and overhaul trade agreements that have brought little benefit.

According to the report, Pakistan's export performance has sharply declined over the decades. In the 1990s, exports made up about 16 per cent of GDP.

By 2024, this figure had dropped to just 10 per cent, even as countries like Vietnam, Bangladesh and India made major gains. The World Bank estimates that Pakistan is losing out on nearly $60 billion worth of potential exports because of poor policies and governance gaps.

One of the biggest issues highlighted in the report is Pakistan's exchange rate system. The Bank has called for a fully market-determined exchange rate, saying the State Bank of Pakistan should stop intervening in the interbank market.

It argues that as long as the exchange rate is controlled for political reasons, Pakistan will continue to face cycles of artificial growth followed by external crises. A flexible exchange rate, it says, will encourage exports, attract foreign investors and reduce speculation around the dollar.

Pakistan's trade agreements have also come under scrutiny. The country has 10 bilateral and regional trade deals, but most are outdated and underutilised. The China-Pakistan Free Trade Agreement is the only one with any real depth, yet even it has favoured China more.

The Bank says Pakistan's trade negotiators lack technical skills and industry consultation, resulting in agreements that look good on paper but offer little practical value.

It has advised the government to strengthen its trade negotiation teams and consult businesses more closely, as per the report. The report also highlights the burden of Pakistan's oversized state machinery. With more than 200 federal state-owned enterprises and heavy bureaucratic involvement, the private sector is often crowded out.

Privatisation, regulatory simplification and governance reforms have been repeatedly discussed but never implemented due to political resistance and vested interests, the report stated. (IANS)

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