For decades, the advice from the IMF and World Bank to Pakistan was consistent: open markets and private enterprise. Yet the World Bank has now published a report titled ‘Industrial Policy for Development’, which focuses on governments that are determined to intervene in the economy. The authors treat industrial policy as something governments will do regardless, and critics of the old consensus view it
TARIFF POLICY
For decades, the advice from the IMF and World Bank to Pakistan was consistent: open markets and private enterprise. Yet the World Bank has now published a report titled ‘Industrial Policy for Development’, which focuses on governments that are determined to intervene in the economy. The authors treat industrial policy as something governments will do regardless, and critics of the old consensus view it
as a surrender.
The Bank’s framework is broader, but for Pakistan the useful distinction is between ‘market incentives’ and ‘public inputs’. ‘Market incentives’, subsidies for chosen firms, tariff walls, local-content rules and consumer rebates are treated with caution. ‘Public inputs’ -- industrial parks, skills, quality infrastructure, transport links, reliable power and water -- are cheerfully endorsed. The first category describes the policies Pakistan has relied on most: protection, concessions and administered advantages for the chosen sector. The second describes what Pakistan has neglected.
The long-run result is visible in Pakistan’s export performance: on PBS customs data, goods exports fell to $15.2 billion in the first half of fiscal year 2026, down from $16.3 billion the previous year; the trade deficit widened from $14.3 billion to $19.2 billion. The share of exports in GDP has slid from 16 per cent in the 1990s to roughly 10 per cent today, leaving growth dependent on remittances and debt-fuelled consumption. Pakistan protected its industries, but rarely forced them to export.
The auto sector is the most expensive monument to that strategy. After more than 50 years of customs duties, additional customs duties, regulatory duties and a constellation of statutory regulatory orders, Pakistan produces roughly 150,000 vehicles a year, little changed from levels reached two decades ago, and exports almost none of them.
Industry representatives, summoned before a Senate committee last year, warned that the new National Tariff Policy 2025–30, which seeks to simplify tariffs, phase out para-tariffs and reduce protection, would put two million jobs at risk. The same submission acknowledged, almost in passing, that taxes can exceed 60 per cent on vehicles whose prices are already among the highest in the region. Half a century of nurture has produced an industry that can survive only if customers continue to pay some of the region’s highest prices.
The Export Facilitation Scheme, designed to relieve exporters of input duties, has become another contested instrument. Textile groups allege misuse and misdeclaration, while smaller exporters complain that compliance costs and working-capital constraints limit their access. Even a scheme meant to help exporters has reproduced the hierarchy of access that industrial policy was supposed to overcome.
Pakistan does not need less industrial policy so much as a different kind of industrial policy. It should stop protecting producers from competition and start lowering production costs for everyone
Industrial electricity tariffs, even after recent reform, remain among the highest in South Asia, partly because policy has long prioritised price-setting for politically sensitive consumers over investment in generation and transmission. Firms also face high logistics costs, limited dry port infrastructure, and weak vocational training. These are the interventions that determine whether a firm can compete abroad.
The authors of the report acknowledge, with diplomatic resignation, that arguing policymakers out of intervention is futile. Of 183 countries assessed, the Bank found that every country targeted the growth of at least one industry. Pakistan has dozens. The current draft proposes a National Land Bank, a capital-reinvestment framework for offshore funds and yet another reform of the SEZ regime.
The Special Investment Facilitation Council, a hybrid civil-military body created in 2023, has been choosing priority sectors, courting Chinese and Gulf investors and offering streamlined approvals. The IMF's $7 billion Extended Fund Facility, with 75 structural benchmarks at last count, exists partly as a check on the tendency to spend, exempt and protect before reforming.
The National Tariff Policy will hold only as long as the government resists lobbying that has already begun from auto assemblers, steel producers and sugar barons. Much of the budget flowing through SEZ tax holidays and sectoral exemptions could be reallocated to grid investment, port logistics, water treatment and skills programmes targeted at the textile, IT and food-processing clusters that already exist.
The SIFC's mandate should narrow to cutting red tape: registry digitisation, harmonised zoning, faster customs clearance and predictable approvals. Exporters tell visiting IMF missions, year after year, that what they want is policy stability.
Pakistan does not need less industrial policy so much as a different kind of industrial policy. It should stop protecting producers from competition and start lowering production costs for everyone. Pakistan should fix the basics before it picks winners.
Pakistan has repeated the pattern in different forms: the nationalisations of the 1970s, which weakened manufacturing; the liberalisation of the 1990s, which came without the institutions to manage it; and the consumer boom of the 2000s, which left the external account exposed. Each began with a confident state and ended with an IMF mission.
The writer is a freelance contributor.
