LAHORE: Trade liberalisation, which was meant to boost exports, has resulted in a paradox for Pakistan. While many industries have failed to penetrate foreign markets, the reduction of tariffs and trade barriers has made imports cheaper and more accessible, instead of integrating Pakistan into the global economy.
The local economy is facing a dilemma: liberalisation has increased imports, while protected domestic industries -- failing to improve efficiency and competitiveness -- are losing not only foreign markets but even domestic market share to imports. This presents a critical challenge for our economic growth. The situation stems from a combination of liberalisation policies and structural weaknesses within domestic industries.
Trade liberalisation has led to a rise in imported goods, particularly in sectors like electronics, consumer goods and machinery. Many of the country’s protected industries have historically depended on subsidies and tariff protections, which fostered complacency and stunted innovation. With the reduction of these protections, these industries have struggled to compete with the quality, efficiency and pricing of imported goods. The inability to modernise and adopt global best practices has hampered their competitiveness in both domestic and international markets.
Imported goods often outcompete local products in terms of quality, price and variety, leading to a decline in market share for domestic manufacturers. This erosion of the revenue base discourages investment in capacity building and technological advancements. Moreover, limited export growth can be attributed to the lack of value-added products and the inability of local industries to meet international standards, largely due to inefficient production systems.
High business costs -- such as energy, logistics and regulatory hurdles -- make domestic production less competitive. Inconsistent policies, political instability and poor infrastructure further exacerbate these challenges.
As a result, the imbalance between imports and exports is worsening the country’s trade deficit. The share of manufacturing in Pakistan’s GDP has been consistently declining, reducing both employment and innovation. The heavy reliance on imports strains foreign exchange reserves and increases the country’s dependency on external financing.
Pakistan’s economic growth is further hindered by corruption, weak institutions, and a lack of focus on small and medium-sized enterprises (SMEs). The country also lags in education, with low literacy rates, underfunded technical training programmes and insufficient emphasis on skill development for high-growth industries.
To address this dilemma, the country needs industrial policy reforms that support the transition to competitive, export-oriented models. Policies should focus on sectors with high export potential, such as textiles, IT and engineering goods. Both the government and manufacturers must invest in innovation and technology by promoting R&D and adopting modern technologies to improve efficiency.
The state should strengthen export-oriented infrastructure and streamline processes to encourage exports. Skill development programmes should be expanded to enhance workforce productivity. Without these targeted reforms, the combination of liberalisation and inefficient industries could worsen Pakistan’s economic challenges.
In comparison, India and Bangladesh have made significant progress despite liberalising their economies later than Pakistan. This success is due to strategic policymaking, better governance, and a focus on key sectors. In contrast, Pakistan liberalised earlier but lacked a comprehensive strategy, leading to the displacement of inefficient domestic industries without creating new competitive ones.
India began liberalising its economy in 1991, following a severe balance-of-payments crisis. The reforms were strategic, focusing on attracting foreign investment, improving industrial productivity and encouraging entrepreneurship. India retained protection in critical areas until domestic industries were competitive and heavily invested in education, particularly in STEM fields, producing a large pool of skilled workers. Institutions like IITs and IIMs have developed globally competitive professionals. India also developed strong institutions to manage its economy, reducing bureaucratic inefficiencies and corruption.
Bangladesh began liberalising in the early 1990s but prioritised export-led growth, particularly in the garment sector, while maintaining supportive policies for domestic industries. Bangladesh focused on vocational training and skill development, particularly in garments and technology, improving governance in export sectors and incentivizing industrial growth through special economic zones (SEZs) and policy support for SMEs.
