Pakistan bets Rs98bn on exports, now industry must deliver

KARACHI: Pakistan has made one of its strongest policy bets on exports in recent years, committing nearly Rs98 billion in fresh fiscal support for FY2026-27. The move comes as improving macroeconomic indicators—including S&P Global’s upgrade of Pakistan’s sovereign credit rating from B- to B (Stable)—offer signs of stability, even as geopolitical tensions in the Middle East continue to create uncertainty for global markets.

The government’s latest export package reflects a clear shift in economic priorities. Instead of relying primarily on remittance-driven external stability, policymakers are attempting to strengthen the country’s productive base through cheaper financing, targeted incentives and industrial expansion.

A new export strategy

Although the package has widely been described as exceeding Rs255 billion, that figure combines long-term financing commitments with current-year spending. The actual fiscal burden for FY27 is estimated at approximately Rs98 billion.

Three major initiatives form the backbone of the policy.

The first expands the Export Finance Scheme by providing exporters with six-month working capital financing at a fixed 8.5% interest rate, supported through an estimated Rs58 billion government subsidy.

The second introduces a long-term financing facility worth Rs350 billion, allowing exporters to invest in new projects, expansion, technology upgrades and modernization. Businesses will pay only 2% interest during the first two years and 5% for the following eight years, while the government absorbs the remaining financing cost.

The third is a performance-linked incentive programme. Exporters increasing overseas sales by up to 10% will receive 1% of incremental exports, while those exceeding 10% growth will qualify for 2%. Unlike previous rebate schemes, the incentive rewards only additional exports rather than total export value.

The government has also expanded the Export Finance Scheme portfolio from Rs1 trillion to Rs1.5 trillion, increasing liquidity available to exporters.

Learning from past policies

Pakistan has experimented with export incentives before, but the outcomes have been mixed.

The 2017 export package helped merchandise exports rise to $24.7 billion, yet imports grew even faster, widening the trade deficit significantly. Financial incentives alone proved insufficient when exchange-rate distortions and rising domestic demand continued to fuel imports.

The current package appears more comprehensive, combining financing support with tax relief and broader industrial reforms.

Export-friendly budget

The FY27 budget complements these measures through lower taxation and improved financing conditions.

The withholding tax on export proceeds has been reduced, preferential tax treatment for IT exports has been extended until 2029, super tax has been eased for businesses, and import tariffs on industrial inputs have been rationalized.

Combined with relatively low financing costs, exporters now have access to borrowing conditions that are considerably more competitive than in recent years.

A clear policy shift

Equally significant is what the government has chosen not to fund.

After spending roughly Rs76 billion last year on remittance-related incentives, authorities have redirected fiscal resources toward export production instead. Rather than subsidizing inward transfers, policymakers are now prioritizing investment that generates employment, manufacturing activity, tax revenue and sustainable foreign exchange earnings.

This represents a notable change in Pakistan’s external-sector strategy.

Exports remain the missing piece

Pakistan’s external position has improved considerably over the past year.

Worker remittances reached a record $41.6 billion, helping limit the current account deficit to just $139 million while foreign exchange reserves recovered to around $17 billion.

However, these improvements have largely been driven by remittances and import compression rather than stronger export competitiveness.

Merchandise exports remain weak relative to the country’s financing needs, leaving Pakistan dependent on IMF programmes and bilateral financial support.

Long-term economic independence cannot be built on external borrowing alone. Sustainable export growth remains essential.

Industry now has the opportunity

For years, exporters argued that expensive electricity, high gas prices, limited financing and an unpredictable tax regime constrained competitiveness.

Many of those concerns have now been partially addressed.

Industrial electricity tariffs have fallen, financing costs have been reduced substantially, tax incentives have been expanded and access to export credit has improved.

Whether these measures translate into higher exports will now depend largely on the private sector’s ability to invest, innovate and expand into new international markets.

Beyond textiles

The benefits of the package are expected to extend beyond traditional textile exporters.

Engineering, pharmaceuticals, food processing and agriculture could all gain from improved financing, while the IT industry requires complementary investments in digital infrastructure, payment systems, cloud services and advanced skills rather than subsidized industrial machinery.

Pakistan must also focus on exporting higher-value products instead of competing solely on low labour costs.

Countries such as Vietnam, Morocco and Costa Rica have demonstrated that sustained export growth depends not only on financing but also on attracting foreign investment, integrating into global value chains and building domestic technological capabilities.

Measuring success

Government support should ultimately be judged by outcomes rather than announcements.

Export incentives should be linked to measurable increases in export earnings, domestic value addition, employment generation, tax compliance and market diversification. Publishing regular performance reports would improve accountability and ensure public funds generate tangible economic returns.

The challenge ahead

The urgency remains evident.

Pakistan’s merchandise exports fell to $30.1 billion during FY26, while imports climbed to $69.6 billion, pushing the trade deficit close to $40 billion.

Although remittances and stronger reserves have eased immediate pressure on the rupee, sustained import growth could quickly reverse recent gains.

Expanding exports is therefore no longer simply a growth objective—it is an economic necessity.

The government has committed significant financial resources to support exporters. The next phase depends on whether businesses can translate those incentives into stronger export earnings, larger investments and greater global competitiveness. Only then can Pakistan move beyond recurring balance-of-payments crises and reduce its dependence on IMF assistance.