In a pivotal policy recommendation, the World Bank has strongly urged Pakistan to fully eliminate Regulatory Duties (RDs) and Additional Customs Duties (ACDs), describing them as major barriers to the country’s export competitiveness. The call comes as part of a comprehensive reform agenda detailed in the Bank’s latest report titled “From Inward to Outward – Pakistan’s Shift Towards Export-Led Growth.”
The report outlines an ambitious vision for Pakistan to transition from a protectionist trade model to a more open, export-oriented economy. According to the World Bank, Pakistan’s current tariff structure is complex and distortionary, discouraging firms from competing globally. The organization has proposed reducing the existing five customs duty slabs to four and scrapping the outdated 5th Schedule of the Customs Act, 1969.
The World Bank’s policy model—developed using the CGE GTAP framework—indicates that a streamlined tariff structure would lead to significant improvements in key economic indicators including GDP, employment, investment, and exports. While imports may also increase in the short term, the report projects that export growth will outpace imports, resulting in an improved trade balance over the medium term. Contrary to fears that lower tariffs would erode government revenues or cause an uncontrollable rise in imports, the Bank emphasizes that such reforms could support a more sustainable and balanced economic environment.
Over the last decade, Pakistan has increased its reliance on import duties, particularly RDs and ACDs, primarily to cover fiscal shortfalls and shield domestic industries. However, this approach has had unintended consequences. The country’s export-to-GDP ratio has declined sharply from over 15 percent in the 1990s to just above 10 percent in 2024, one of the lowest among middle-income countries. The report argues that high tariffs on raw materials and intermediate goods have inflated production costs, reduced firm-level productivity, and hindered integration into global value chains.
The World Bank also criticizes the uneven playing field created by Pakistan’s protectionist policies. While politically connected large firms often secure exemptions, small and medium-sized enterprises (SMEs) are disproportionately burdened by import duties and regulatory hurdles. This, according to the report, has diverted investment toward less productive sectors that are shielded from competition, stalling innovation and long-term economic growth.
To facilitate a shift toward an export-led model, Pakistan has already initiated structural reforms. The National Tariff Board (NTB) has assumed control of tariff policymaking from the Federal Board of Revenue (FBR), a move aimed at separating fiscal and trade policy objectives. Additionally, the URAAN Pakistan blueprint under the Prime Minister’s economic transformation agenda includes key initiatives such as privatization of state-owned enterprises, energy sector reforms, and deregulation efforts to improve the ease of doing business.
However, the World Bank cautions that tariff reform alone is insufficient. A broader, coordinated policy package is essential. This includes ensuring exchange rate flexibility, reducing energy costs, improving access to trade finance, and streamlining business regulations. Strengthening institutions such as competition authorities and insolvency frameworks is also deemed critical for long-term success.
In essence, the World Bank is calling for bold, coordinated action to reposition Pakistan within the global economy. Without such reforms, the country risks perpetuating a cycle of low productivity, limited export growth, and macroeconomic vulnerability. The urgency of this policy shift is clear: Pakistan must act swiftly to seize its export potential or risk falling further behind in an increasingly competitive global marketplace.