Pakistan’s external accounts are under strain again. The trade deficit for the first two months of the 2026-27 fiscal year widened by 18% year on year to $7.12bn, from $6.01bn, after reaching $39.47bn for FY2026 as a whole. With short-term external liabilities of about $24bn, the government has returned to international markets. It raised $1.75bn through a five-and-a-half-year Eurobond at 7.5% and $1.25bn through a ten-year issue at 7.9%. Paying nearly 8% for decade-long dollar borrowing is costly for a country already burdened with heavy debt repayments. Several commentators argue that the real issue is whether the money will simply refinance old debts and fund consumption, or whether it will buy time for reforms that increase export earnings.
The global backdrop makes things harder. The war between America and Iran has pushed up energy prices: at the time of one analysis, Brent crude was close to $100 a barrel and the UAE’s Murban grade above $107. Other exporters are nonetheless doing better. Cambodia’s exports grew at an annualised rate of 21.3% in the first seven months of 2026, to $20.81bn, even as Pakistan’s trade gap widened. Cambodia’s GDP was about $49.29bn in 2025, compared with Pakistan’s $407.79bn, yet its annual exports of around $38.7bn exceeded Pakistan’s $36.7bn. The two countries rank 65th and 67th in the world respectively.
The comparison is revealing because the two countries are similar in important ways. Both have free-trade agreements with China, and both sell garments, footwear, travel goods and rice. The difference lies in tariff policy. Only 4.4% of Cambodia’s tariff lines carry duties above 15%, compared with 39.1% of Pakistan’s. Cambodia uses four bands of 0%, 7%, 15% and 35%, with an average applied most-favoured-nation tariff of about 9.4% and a 10% value-added tax. Pakistan adds additional customs duties of 2-7%, regulatory duties of up to 50% and an 18% sales tax. As a result, Pakistani manufacturers can pay 15-30% more for raw materials and intermediate goods than their South-East Asian competitors. This burden also encourages smuggling, mis-declaration and corruption.
Market access compounds the problem. Cambodian firms benefit from the Regional Comprehensive Economic Partnership (RCEP), ASEAN trade arrangements and bilateral agreements with China and South Korea, which let them buy inputs cheaply in the region and sell finished goods in America, the UAE and elsewhere. Pakistan belongs to none of these groupings and remains largely outside the regional supply chains for clothing, footwear, electronics and light engineering. Trade between the two countries is small. Pakistan sells about $48m a year to Cambodia, mainly packaged medicines and woven fabrics, and buys about $4.5m from it. Cambodia’s exports to Pakistan, however, have grown at an annualised rate of about 30% over five years.
Analysts propose three specific remedies. The first is to phase out regulatory and additional customs duties on industrial inputs, which they estimate could cut acquisition costs by 8-12%, with lost revenue recovered through broader formalisation of the economy. The second is to reduce the share of tariff lines above 15% to below 10%, with higher protection reserved for a small range of finished consumer goods. The third is to lower electricity prices for export-oriented factories to 8-9 cents per kWh. That would require a forensic audit of independent power producers (IPPs) and a review of all legal options on capacity payments, including force-majeure clauses where they apply. The same analysts warn that the government’s new sectoral committees will be effective only if they are made up of independent experts rather than interested parties.
Others are more ambitious. One proposal would raise exports of goods and services from about $40bn, roughly 10% of GDP, to $400bn. Its author acknowledges the scale of the challenge: reaching the target in ten years would require annual growth of almost 26%, which is not a realistic baseline. Over 15 years, the required rate is about 16.6%, still extremely demanding, though Vietnam has shown that sustained export transformation is possible. The plan calls for a three-year move to a few tariff bands, duty-free inputs for direct and indirect exporters, and repayment of verified sales-tax refunds to low-risk firms within ten working days, with interest owed after that. A National Export Council chaired by the prime minister, backed by a small delivery unit in the Planning Commission, would remove obstacles each quarter and publish a scorecard.
The proposal also aims to change the composition of exports, not just their value. Textile firms would move from yarn and basic garments towards technical fabrics and brands; agriculture from bulk crops towards processed, traceable food; and IT from freelancing towards software products, artificial intelligence and cybersecurity. All subsidies would be time-limited, their costs published, and benefits withdrawn from firms that fail to deliver. Investors would deal with a single account team, and the government’s first 100 days would include assigning teams to 50 large investors that use the country as an export base. Its author stresses that the $400bn figure is a goal to work towards, not a forecast.
The history behind these proposals is sobering. In 1960, according to World Bank data, present-day Pakistan’s GDP of about $3.75bn was close to South Korea’s $3.97bn and almost double Malaysia’s $1.92bn. By 2024, South Korea’s economy had grown to $1.88trn and Malaysia’s to $422bn, while Pakistan’s stood at about $372bn. The comparison needs some qualification. Pakistan’s income per person was not higher at the outset: in current dollars it was about $82, against $159 in South Korea and $241 in Malaysia. In constant prices, however, real GDP per person in Pakistan roughly quadrupled to $1,635, while it rose more than ninefold in Malaysia and nearly 36-fold in South Korea, to $37,048. Bangladesh, at about $1,941, has now overtaken Pakistan.
Trade and investment figures tell the same story. Exports were 7.6% of Pakistan’s GDP in 1970 and are only about 10.4% now. Over the same period, South Korea’s share rose from 11.3% to 44.4%, and Malaysia’s is now 71.3%. Pakistan’s investment fell from 15.8% of GDP in 1970 to about 13.2% in 2024, while South Korea invests about 30%, Bangladesh almost 31% and Malaysia about 22%. One economist explains this through game theory. Pakistan, he argues, is stuck in a series of prisoner’s dilemmas in which each actor makes rational choices that add up to a poor collective outcome. Firms pay little tax because politically connected competitors pay less. Businesses lobby for protection because doing so pays better than innovation. Civil servants delay decisions because acting exposes them to personal risk. Governments postpone reform because its costs come immediately while its benefits may go to their successors.
According to this analysis, South Korea also protected and subsidised its industries, but it tied that support to export performance, which forced firms to compete in foreign markets. Pakistan offered protection without such conditions, so temporary help became permanent. Rescues by the IMF and friendly countries prevented collapse but also reduced the urgency of reform. The result is a recurring cycle of protected growth, rising imports, falling reserves, emergency stabilisation and fading interest in reform. The World Bank estimates that real output per person has grown by only about 2.2% a year over the past two decades.
Delays add another, rarely measured cost. One Chinese investor seeking to export donkey meat and hides reportedly needed about 28 approvals and certifications, and waited more than five years before shipping anything. The upgrade of ML-1, the 1,733km railway line between Karachi and Peshawar, has been planned, negotiated and redesigned repeatedly without full-scale construction. Meanwhile freight continues to move by road, and vehicles stuck in traffic burn imported fuel. Slow courts, late government payments and delayed tax refunds tie up capital across supply chains. The commentator who documented these delays argues that every administrative process should have a clear requirement, a responsible authority and a fixed deadline.
The various proposals reach broadly the same conclusion. Pakistan does not lack analysis; it has repeatedly failed to turn analysis into structural reform. The new Eurobonds give the country some breathing space but do not address the underlying problems. Unless input costs, power prices and administrative delays move closer to regional norms, export growth is likely to remain weak, and future borrowing may become even more expensive.