How exports, population control & policy reform can help Pakistan overcome its debt crisis

Pakistan is walking a fiscal tightrope. By FY25, public debt had climbed to roughly USD 289. 1 billion (PKR 80. 6 trillion) against a GDP of approximately USD 407. 1 billion. That puts the debt-to-GDP ratio at around 70 percent. Here’s the uncomfortable part: Pakistan’s own law sets the ceiling at 60 percent. The Fiscal Responsibility and Debt Limitation Act — passed in 2005, amended in 2022 — makes that explicit. The government isn’t just missing an external benchmark. It’s missing one it wrote itself. The trajectory of this debt tells a damning story of poor policy choices, not just bad luck: Almost every government that’s held power in Pakistan has borrowed more than it repaid. That’s not an accusation — it’s the record. The country’s now caught in a structural debt rollover trap: new loans to service old ones, with no meaningful reduction in the actual burden. China alone is owed around USD 68. 91 billion, financing 433 projects since 2000. In June 2025, Beijing rolled over USD 3. 4 billion in commercial loans just so Pakistan could maintain IMF-required reserves. That’s not a partnership. That’s a lifeline. There’s really only one honest exit from this: earn more foreign exchange. Remittances help — 9. 4 percent of GDP in FY2024-25 is nothing to dismiss — but they can’t do the structural work that a real export economy does. You can’t borrow your way to prosperity. You export your way there. Pakistan’s export performance over the past decade isn’t just disappointing. It’s a slow-moving national emergency. Exports as a share of GDP have fallen from around 16 percent in the 1990s to just 10. 4 percent in 2024, according to the World Bank. For nearly twenty years, Pakistan’s exports have been stuck in the USD 25– 30 billion range. Not because global trade slowed; it is because Pakistan chose the wrong policies. Look at what happened elsewhere in the same period: Bangladesh — widely considered less industrially endowed — now exports more than twice what Pakistan does. Vietnam started from roughly the same base two decades ago and now exports eleven times more. This isn’t a geography story. It’s a policy story. The World Bank estimates Pakistan’s untapped export potential at close to USD 60 billion. Pakistan currently captures about half of what it should, given its population, location, and economic characteristics. That gap between potential and reality is the direct, measurable cost of policy failure. The concentration problem is just as serious. In FY2024-25, textiles and apparel alone accounted for about 56 percent of Pakistan’s exports. Add leather and rice and you’re looking at roughly two-thirds of total exports — most of it low to medium value-added. High-skill and technology-intensive exports crept up from 3. 6 percent of merchandise exports in 2001 to just 6. 4 percent in 2024. Vietnam hit 33. 9 percent. China reached 41. 1 percent. Pakistan’s digital services exports – 0. 1 percent of the global market, against India’s 5. 8 percent. The fastest growing export category in the world — and Pakistan’s barely in it. Energy is where the competitiveness gap becomes a crisis. Pakistan’s textile sector pays electricity at roughly 10–11 cents per kWh. Bangladesh pays around 8 cents. India pays less still. That 1. 5–2. 4 cent gap translates directly into uncompetitive export pricing. On razor-thin global margins, that alone determines whether an order goes to Karachi, Dhaka, or Mumbai. And the cross-subsidization model — where industry subsidizes household electricity — is a political choice that exports Pakistan’s competitiveness to its rivals. Taxation policy – the real culprit. Tax rates have more than doubled since this government took office. The FY2024-25 budget delivered the sharpest structural blow: exporters were moved from the Final Tax Regime (FTR) to the Normal Tax Regime (NTR). Under FTR, a 1 percent turnover tax was the full and final liability — simple, predictable, and requiring minimal interaction with FBR. That clarity is gone. Under NTR, the 1 percent minimum tax on export proceeds remains, but is no longer final. An additional 1 percent advance tax is collected upfront. Exporters must then compute taxable income and pay corporate tax at 29 percent on profits — plus Super Tax of up to 10 percent depending on income slab. For individual exporters with income above Rs. 10 million, the marginal rate reaches 35 percent, with the 10 percent levy on top. The combined burden approaches 52 percent on profits. With losses, the minimum turnover tax still applies. Provincial levies add further. FBR’s failure to broaden the tax base has concentrated the entire weight on the organized export sector. Exporters are exiting. The data confirms it. The damage runs deeper than headline rates. The shift to NTR has done more than raise taxes — it has buried exporters in process. FTR meant minimal contact with FBR. NTR means a continuous cycle of notices, hearings, scrutiny, assessments and reassessments. Management bandwidth that should go toward winning orders, develop markets and expand capacity is instead consumed by maintaining voluminous accounting records and managing tax office relationships. This is a hidden competitiveness cost that never appears in any tariff comparison — but every exporter feels it. When the Export Facilitation Scheme was introduced in 2021, its logic was sound: exports must be tax-neutral. Exporters were to receive duty-free access to inputs and zero-rated local supplies, eliminating refund dependency entirely. That framework has since been systematically dismantled. Zero-rating has been withdrawn. Duties and taxes have been re-imposed on imported inputs. A scheme designed to eliminate refunds now depends entirely on them. Pakistan’s refund system compounds the damage further. Sales tax refunds and duty drawbacks — legally owed to exporters — routinely take 6 to 18 months to materialize. The additional 1 percent advance tax now ties up even more liquidity inside FBR. Billions in working capital are frozen in pending claims, effectively making the state a forced borrower from the private sector it claims to support. The value added garments sector — already burdened by high energy costs and expensive credit — is acutely vulnerable. Even modest cash flow disruptions translate directly into lost orders and forfeited market share. The underlying policy fallacy is worth stating plainly. Higher export taxes may produce a short-term revenue uptick, but the consequences compound quickly: producers attempt to recover costs through domestic price increases, feeding inflation; lower financial surpluses suppress BMR investment, capacity expansion and export marketing; and declining export volumes ultimately shrink the very tax base the government was trying to deepen. Taxes on export inputs do not generate sustainable revenue. They reduce export volumes. Bangladesh and Vietnam have built their export ecosystems on the opposite principle — minimizing tax distortions, guaranteeing duty-free inputs, and ensuring rapid refunds. Pakistan has moved in precisely the opposite direction. The corrective path is clear. Exporters must be returned to a Final Tax Regime — low, predictable, and requiring minimum human contact with FBR. A fully automated refund system with a 30-day processing ceiling is the international standard, not an ambition. The Finance Ministry must ring-fence an Export Refund Fund, formula-funded and insulated from annual budget pressures. And the EFS must be restored to its original architecture — zero-rating and duty-free inputs for export production as a matter of structural necessity, not periodic concession. These corrections would immediately release billions in working capital. More importantly, they would signal — credibly and unambiguously — that export-led growth is the actual policy priority, not merely the stated one. Policy instability compounds everything. Pakistan has had five prime ministers, four finance ministers, and three SBP governors in the last eight years. Every transition brings reversals — new frameworks, disrupted incentives, repriced risks. No exporter makes a 5–10 year investment decision in an environment where energy pricing, tax treatment, and exchange rate policy shift with every government — or within the same one. Vietnam’s export miracle was built on decades of consistent, credible policy. Pakistan has offered the opposite. Then there’s the population question — the one nobody wants to say plainly. Pakistan’s population stands at approximately 255 million in 2025. It’s growing at 1. 9 percent per year — more than twice the global average of 0. 9 percent. At that rate, the population reaches 511 million by 2100. With GDP growing at 3 percent and population at 1. 9 percent, per capita income growth is barely 1. 1 percent annually. The economy runs hard just to stand still. Every rupee that could go into export infrastructure, industrial capacity, R&D, or education is instead absorbed by feeding, schooling, and providing basic services to 14, 684 additional babies born every single day. Pakistan’s high dependency ratio of 68. 4 means a small working-age population carries a large dependent base. The educational system is overwhelmed. Stunting rates are among the region’s worst. A workforce that enters the labour market undereducated and undernourished cannot produce the high-value, technically sophisticated exports that generate real foreign exchange. Vietnam’s export miracle was built on a young, educated, disciplined workforce — the product of deliberate demographic management. Bangladesh’s garment rise coincided with female education gains and family planning. Pakistan has the young population. It doesn’t yet have the human capital to convert it into export-led growth. Countries that managed their population earlier — South Korea, Taiwan, Malaysia — freed up fiscal space and redirected it into export-led industrialisation. Pakistan’s fiscal space, after debt servicing and running the government, is what’s left. Not much. The policy prescription: what must change? Pakistan has USD 60 billion in untapped export potential identified by the World Bank. Realising even half of that transforms the fiscal position, strengthens the rupee, reduces debt dependence, and creates millions of skilled jobs. Here’s what needs to happen: Tax regime overhaul. Exporters should be shifted back to FTR. Advance tax and super tax should be abolished. The corporate income tax rate should come down to 20 percent. The burden of levies and provincial taxes needs to go. This isn’t a gradual reform — it needs to happen before the export sector reaches irreversible closure. Energy pricing that actually competes. The export sector to compete internationally needs electricity at a maximum of 7. 5 cents/kWh and gas at R2, 200/MMBTU. That’s the threshold below which Pakistani exports become globally competitive. A five-year committed energy compact — fixed pricing, no political reversals — would give exporters the confidence to invest in capacity. The cross-subsidy model that pits industry against households must end structurally, not temporarily. Diversification beyond textiles. IT and digital services, agricultural value-added products, halal food — Pakistan has untapped potential in all three. Capturing just 1 percent of the global digital services market within a decade would mean USD 10 billion in annual digital exports. The policy requirement is straightforward: tax exemptions for IT exporters, fast broadband, and stable regulation. Population management as economic policy. Pakistan’s CCI has committed to replacement-level fertility (TFR 2. 1) by 2030. Getting there requires tripling the family planning budget, universal contraception access, mandatory investment in female secondary education — the single most effective driver of fertility reduction — and provincial accountability mechanisms. This isn’t a social issue. It’s fiscal arithmetic. The path forward requires three simultaneous shifts: a dramatic, policy-driven expansion of exports — targeting the USD 60 billion in untapped potential identified by the World Bank; a serious, funded, and politically committed program of population management that brings fertility rates toward replacement level; and the structural policy reforms — on energy, tariffs, taxation, and exchange rates — that make exporting profitable and predictable. Pakistan has the people, the manufacturing base, the geographic position, and the diaspora networks to be a genuine export powerhouse. What it has lacked is the political will to prioritize the exporter over the importer, the long-term over the short-term, and the structural reform over the populist subsidy. The time to change that is now. The debt clock is running. Copyright Business Recorder, 2026

Read full story on Business Recorder