Major Features of the UK, India FTA

The United Kingdom and the Republic of India concluded negotiations on a Comprehensive Free Trade Agreement (FTA) on 6 May 2025. The agreement was subsequently signed on 24 July 2025. Alongside the FTA, both nations have agreed to negotiate a Double Contributions Convention (DCC), which will come into force in line with the wider trade deal.

Through this deal, India will remove or reduce tariffs on 90% of tariff lines, covering 92% of existing goods imports from the UK. India on the other hand will cut tariffs worth approximately €400 million annually, which is projected to more than double to around €900 million after ten years of staging.

The United Kingdom and Pakistan

The trade relationship between Pakistan and the United Kingdom is robust and growing, with bilateral trade reaching a record high of over €5.5 billion, establishing the UK as Pakistan’s third-largest export destination and its most significant economic partner in Europe. This partnership is characterized by a strong UK investment presence, with more than 200 British companies operating in Pakistan and contributing over €3 billion in investment, playing a vital role in employment, technology transfer, and tax revenues.

Export Portfolio Diversification (EPD) Matrix

The Export Portfolio Diversification (EPD) Matrix is a tool used to evaluate the performance and potential of export products across different markets.

• Rising Stars (28 sectors): Pakistan is capturing market share in a growing UK market, led by a structural pivot from raw textiles toward value-added agribusiness and high-tech sectors like electrical machinery (+23%) and pharmaceuticals (+13%).
• Lost Opportunity (8 sectors): Despite a contracting overall UK import market, Pakistani suppliers successfully expanded their market footprint in home textiles (+1%), iron/steel (+12%), and resilient niche segments.
• Retreat (10 sectors): Capital is naturally migrating away from low-value, raw commodities (like raw cotton and fibers) as both UK demand and Pakistani production contract in tandem toward an orderly structural phase-out.
• Falling Stars (22 sectors): Trade policymakers face severe competitive erosion in expanding UK markets, marked by declining shares in core agribusiness (rice, spices, dairy) and critical heavy manufacturing (machinery, aviation, aluminum).

Table 1: Pakistan’s Competitive Advantages in the UK Market

Key Findings:

1. The India-UK FTA facilitates significant tariff liberalization on premium British commodities. India will immediately reduce its import duties on Scotch whisky from 150% to 75%, alongside a structured reduction in automotive tariffs—historically capped at 110%—down to 10% under a preferential tariff rate quota (TRQ) mechanism.
2. UK companies get a special shortcut to bid on Indian government contracts. They will get preferred treatment as long as 20% of their product comes from the UK. However, this deal only covers the central government, completely leaving out India’s massive state-level public spending.
3. The deal fails to help the UK’s strongest sector: financial services. Foreign ownership in Indian banks and insurance firms remains permanently capped at 74%, and India has refused to loosen its strict licensing rules for foreign banks.
4. Trade patterns are changing fast. Indian smartphone exports to the UK went from zero to €1.2 billion in just a few years. Meanwhile, pearls have surprisingly become the UK’s single largest export to India, peaking at €6.2 billion.
5. British investment into India doubled in a single year, making the UK India’s fourth-largest source of foreign funding. At the same time, the number of Indian-owned businesses operating inside the UK grew by 60%, pulling in nearly €106 billion in revenue.
6. Pakistan-UK trade has hit an all-time high of over €5.5 billion, making the UK Pakistan’s third-largest export market. More than 200 British companies are active in Pakistan, contributing nearly €3 billion in investment.
7. On the basis of the DCTS – UK’s trading scheme, 94% of Pakistani goods enter the UK tax-free, saving local exporters around €120 million a year. The remaining 6% face standard global taxes.
8. To sell to top British retailers, Pakistani factories must prove they follow international standards (like organic or sustainable cotton rules). However, the high cost of getting these official certificates blocks smaller Pakistani firms from competing.
9. Pakistan relies on just four markets—the US, EU, UK, and China—for 60% of its entire export economy. This concentration makes Pakistan highly vulnerable if any of these nations decide to change or cancel their trade favor schemes.

Recommendations

1. Move from a basic proposal to active negotiations for a formal Free Trade Agreement. This locks in permanent, guaranteed trade benefits instead of relying on temporary, one-sided UK preference schemes (like the DCTS).
2. Create a government grant to help medium-sized textile and clothing companies pay for international environmental and labor certifications. This will help them meet the strict standards required by British retailers.
3. Set up a monitoring team to watch how the new India-UK trade deal changes British regulations. This ensures new labeling rules or standards do not quietly push Pakistani goods out of the market.
4. Use Pakistan’s embassy network & the Pakistani diaspora in London to connect local food brands with major UK supermarkets. Fast-growing sectors like processed foods (+29%) and bakery products (+19%) face fewer border checks than raw crops and have massive growth potential.
5. Stop relying permanently on one-sided trading favors from foreign governments, which can be canceled at any time. Instead, focus long-term policy on cutting domestic manufacturing costs, improving shipping logistics, and making Pakistan genuinely competitive on its own merits.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The study identifies significant unrealized export opportunities across a broad range of sectors and markets. It evaluates Pakistan’s existing export strengths, highlights areas where exports remain below potential, and identifies new product categories that could support diversification and long-term export growth. The findings aim to support policymakers, businesses, and trade institutions in designing more targeted export promotion strategies and strengthening Pakistan’s integration into global markets.

Pakistan’s Export Structure Remains Highly Concentrated

Pakistan’s export basket continues to be dominated by a limited number of sectors, particularly textiles and apparel, along with selected agricultural products. While these sectors remain important sources of export earnings, the high concentration of exports increases vulnerability to external demand shocks, price fluctuations, and changes in global market conditions. The analysis highlights the need to broaden the export base and reduce dependence on a narrow range of products.

Figure 1: Distribution of Pakistan’s Exports Across Sectors

Source ITC

Pakistan Lags Behind Regional Competitors in Export Diversification

A comparison with major Asian economies shows that Pakistan’s export diversification remains relatively limited. Countries such as China, Vietnam, and India have developed broader export baskets and stronger participation in diversified global value chains. Pakistan continues to rely on a narrower range of products and demonstrates lower product diversification, restricting its ability to capture emerging opportunities in global trade.

Figure 2: Comparative Overview of Export Diversification Performance

Source ITC

Export Diversification and Competitiveness Opportunities

The study identifies significant opportunities to diversify Pakistan’s exports beyond its traditional export base. Promising prospects exist in industrial and intermediate goods, chemicals, plastics, fertilizers, processed foods, fisheries, fruits and vegetables, construction materials, light manufacturing, and selected consumer products.

Developed markets offer high-value opportunities but require greater compliance with international standards, stronger quality assurance, and higher levels of product differentiation. In contrast, regional and emerging markets provide relatively easier access for price-competitive products and intermediate goods.

The competitiveness analysis shows that Pakistan has an established presence in several export categories but remains concentrated in lower and middle-value segments. In most developed markets, Pakistan’s competitiveness is driven primarily by cost advantages rather than branding, innovation, or quality positioning.

Strengthening value addition, product upgrading, branding, and quality enhancement will be essential for improving competitiveness, expanding market penetration, and achieving sustainable export diversification.

Challenges

Infrastructure and Logistics Constraints

Weak transport infrastructure, inefficient logistics systems, and high trade costs continue to undermine export competitiveness. Port inefficiencies, inadequate warehousing facilities, limited cold-chain infrastructure, and reliance on road transport increase shipment costs and reduce the reliability of export supply chains, particularly for high-value and time-sensitive products.

Low Productivity and Limited Value Addition

Pakistan’s exports remain concentrated in low-to-medium value segments, reflecting persistent productivity challenges and limited product upgrading. Weak industrial efficiency, low technological adoption, and insufficient investment in branding, innovation, and quality enhancement constrain the country’s ability to compete in higher-value international markets.

Regulatory and Institutional Inefficiencies

Complex regulatory procedures, weak institutional coordination, and high compliance costs increase the cost of doing business and discourage export expansion. Small and medium-sized enterprises (SMEs) are particularly affected by limited access to formal finance, cumbersome procedures, and difficulties in meeting international standards and certification requirements.

Macroeconomic Instability and Policy Uncertainty

Recurring macroeconomic imbalances, exchange rate volatility, inflationary pressures, and rising production costs create uncertainty for exporters and investors. Frequent policy changes and inconsistent implementation further weaken long-term business planning and reduce confidence in export-oriented investments.

Weak Integration into Global Value Chains

Pakistan remains insufficiently integrated into regional and global production networks. Limited participation in higher value-added stages of production, weak linkages with multinational supply chains, and low export sophistication continue to restrict opportunities for sustained export growth and diversification.

Recommendations

Targeted Export Diversification

Reducing export concentration requires a shift from broad sector-based support toward product-specific export promotion. Priority should be given to products and sectors with demonstrated export potential, particularly processed foods, fisheries, pharmaceuticals, chemicals, light manufacturing, and selected industrial products.

Upgrading Competitiveness and Value Addition

Improving competitiveness will require greater focus on product quality, innovation, branding, certification, and value addition. Strengthening Pakistan’s position in higher-value market segments can enhance export earnings and reduce dependence on price-based competition.

Improving Trade Facilitation and Logistics

Investments in transport infrastructure, logistics services, customs modernization, and trade facilitation measures are essential to reduce export costs and improve supply chain efficiency. Better logistics performance can enhance market access and strengthen Pakistan’s competitiveness in international markets.

Strengthening Market Intelligence and Export Promotion

More effective trade intelligence systems are needed to align export products with market-specific demand. Enhanced use of product-level analysis, buyer networks, trade promotion activities, and market information platforms can improve export penetration and support diversification efforts.

European Union Regulations Applicability to Pakistan

Pakistani companies do not have to file directly under these EU rules. However, EU buyers will require Pakistani manufacturers to meet these standards as a condition for doing business and the compliance burden will ultimately fall on Pakistani factories. The expected timeline of the new regulations and their impact is given below.

Table 1: EU Regulations Applicability to Pakistan

Recommendations

The recommendations for helping Pakistan comply with the EU’s new protocols as they relate to Pakistan’s textile exports to the EU are summarized below.

1. Unified Compliance Framework: A standardised compliance and auditing system aligned with EU requirements needs to be developed. Its cost should be shared between manufacturers, the export industry, government of Pakistan, and buyers.
2. Incentives for Compliance Investment: There should be tax benefits or rebates as incentives for companies that implement with such initiatives.
3. Long-Term Energy Policy: The government needs to provide long-term stability in energy pricing so companies can make sustainable investment decisions with lower risk.
4. Resolve EFS Sales Tax: Imported chemicals benefit from duty exemptions, while compliant local chemical manufacturers and their customers are not treated equally. It needs to be resolved so that compliant manufacturers are not disadvantaged.
5. Shared Infrastructure for SMEs: Centralised Effluent Treatment Plants (CETPs – shared wastewater treatment facilities for clusters of factories) and special economic zones with shared infrastructure would reduce the per-unit compliance cost for smaller manufacturers. Government incentives for renewable energy and wastewater recycling are also needed.
6. Accelerate the National Digital Product Passport (DPP) Platform: The National Compliance Centre’s national DPP dashboard needs to be fast-tracked, formally funded, and integrated with the Pakistan Single Window system at minimal transaction cost to SMEs.
7. SME Financial and Technical Support: SMEs that cannot afford the initial investment for compliance software or infrastructure should receive financial support through available funds, green loans or other handholding financial support.
8. Upgraded Chemical Testing Infrastructure: Upgraded chemical testing labs are needed for the sector. A national-level investment in accessible, affordable testing infrastructure would reduce dependence on expensive third-party or overseas testing.
9. Link Compliance to Business Volume: Brands and buyers should have a dialogue with their suppliers making clear that if suppliers comply, buyers will buy more from them. It should be linked directly to more business.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The architecture of finance is being rewritten as Pakistan stands at an inflection point in its transition from a cash-based economy to a digital financial system. In little over a decade, paying, saving, borrowing, and investing have begun migrating from the bank branch and the cash counter to the mobile phone. A young population of more than 240 million, rising smartphone penetration, a sequence of ambitious regulatory reforms, and the rollout of national digital public infrastructure have made the country one of the more closely watched fintech stories in South Asia.

Pakistan’s digital payments have grown at remarkable speed. Retail payments reached 9.1 billion transactions worth PKR 612 trillion in FY 2025, and digital channels now account for 88% of retail transactions by volume, with mobile-app banking alone handling 6.2 billion transactions.

Pakistan Retail Payments Breakdown (FY 2025)

Source: Annual Payment Systems Review FY 2024-25, State Bank of Pakistan

At the centre of this shift is Raast, the SBP’s instant payment system, whose transaction volume has grown roughly 162-fold since 2022 at a CAGR of around 256%, reaching 1.28 billion transactions in 2025. User adoption has risen across every channel, with branchless-banking app users reaching 79.2 million and mobile-banking users 24.1 million.

Despite the growth in digital payments, cash continues to dominate by value, and Raast’s activity remains overwhelmingly person-to-person contributing 99% of volume and merchant payments remain very low. Even so, the prospect of digital payments fully replacing cash remains distant.

Pakistan’s position is best understood against comparable markets. The report benchmarks the country against India, Bangladesh, and Indonesia, the three economies that, alongside Pakistan, hold some of the world’s largest unbanked populations. On the most basic measure of inclusion, account ownership (aged 15+), Pakistan lags behind all three, at roughly 27% of adults against Bangladesh’s 43%, Indonesia’s 56% and India’s 89% — a gap that reflects how much of the rail-building is yet to convert into everyday use.

Key Segments in Fintech:

Opportunities:

Artificial intelligence can lower the cost of serving each customer through automated onboarding, fraud detection, and alternative-data credit scoring. Voice-based interfaces could bring finance within reach of the population that cannot easily read or write.

Cross-border remittances and stablecoins: Now backed with PVARA and Virtual Assets Act, blockchain-based settlement can offer near-instant, low-cost alternatives for remittances that accounted USD 38.3 billion in FY 2025.

Capital markets and WealthTech: Digital brokerages are resolving old barriers to entry issues by offering fully online onboarding, low minimum investments, and app-based trading aimed at a young, first-time investor base.

Recommendations:

The report maps recommendations gathered through interviews and review of secondary data.

For regulators: scale open banking from sandbox to a full consent-based data-sharing layer; centralise and modernise the fragmented capital-markets back-end so investors are onboarded at once across different entities; and issue clear guidance on ethical, transparent AI.

For industry: Work towards bringing innovation rather than waiting for regulator-led innovation as the regulator has provided the framework and infrastructure, i.e., Raast, now the industry should build compelling use cases. Invest continuously in fraud prevention and consumer awareness; and pair merchant rollout with hands-on training.

For government: close the rural connectivity gap; reduce cash gradually by slowing note printing rather than abruptly demonetising; and embed financial and digital literacy in school curricula.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Global Other Business Services Trade

Globally, Classification 10, Other business services were the most exported services in the world with its exports reaching $2.1 trillion in 2024). The Classification 10, Other business services maintained a healthy 7.4% CAGR over the 10-year period (2015–2024), its growth surged to 8.0% during the 6-year period (2019–2024). The U.S.A. was the top exporter of Classification 10, Other business services in 2024, exporting a value of $263.9 billion and having a market share of 12.5%. Both the U.S.A. and the U.K. held about 23.6% of the global market share in 2024.

Pakistan’s Other Business Services Trade

Pakistan’s Classification 10, Other business services exports amounted to $1,573.0 million in 2024. Classification 10, Other business services were Pakistan’s second most exported commercial services in 2024. Classification 10, Other business services’ exports have shown a steady upward trajectory, growing from $1,340 million (FY20) to $1,693.5 million (FY25).

Pakistan’s Other Business Services Trade Scenario from FY20 to FY25

Source: SBP (2026 b)

Pakistan’s export market for Classification 10, Other business services is dominated by 4 countries which make up about 55.4% of the total share of Pakistan’s exports of Classification 10. China is Pakistan’s biggest import partner constituting 19.0% of Pakistan’s total Classification 10, Other business services imports.

Pakistan’s Accounting, Auditing, Bookkeeping and Tax Consulting Services

Pakistan’s accounting services market is a rapidly expanding sector driven by a high demand for BPO and strict regulatory compliances. Leveraging a tech-savvy and technically competent workforce, local firms offer global cost savings of up to 50% through IFRS-compliant services, bookkeeping, and tax preparation.

Within Pakistan’s Other Business Services exports, Accounting, Auditing, Bookkeeping, and Tax Consulting services generated approximately US$69.2 million in FY25, recording a 15.0% CAGR between FY20 and FY25. The sector also maintains a strong and persistent trade surplus, reflecting its potential as a source of foreign exchange earnings and higher-value services exports.

Accounting, Auditing, Bookkeeping and Tax Consulting Services Trade Scenario from FY20 to FY25

Source: SBP (2026 b)

Main Findings

Current Market Trends and Future Projections

Strong export growth driven by rising global demand; though continued success increasingly depends on expertise and quality rather than cost alone. Domestic market remains constrained by low fees and high taxes. Demand persists for entry-level finance services but job-ready talent is scarce. AI will automate routine functions, making higher-value advisory and compliance capabilities essential.

Human Capital and Talent Retention Challenges

Graduates lack practical skills, communication abilities, and tech familiarity. Visa restrictions hinder international service delivery. High personal income taxes push skilled professionals toward Gulf & and other markets.

Market Access, Visibility, and International Positioning Constraints

Marketing restrictions limit international visibility. Pakistan is perceived as a low-cost outsourcing hub rather than a quality services provider. Most business is generated through referrals and diaspora networks, making client acquisition difficult for new entrants.

Technology, Infrastructure, and Digital Competitiveness Constraints

Power and internet disruptions undermine client confidence. Weak data protection frameworks reduce international trust. Complex forex procedures and high software costs further limit competitiveness, particularly for SMEs.

Regulatory, Taxation, and Business Environment Challenges

Regulatory complexity discourages foreign investment. Major international accounting firms have exited the market. Fragmented provincial tax regimes and administrative burdens reduce competitiveness.

Weak Institutional Support and Commercial Facilitation

No unified export promotion body exists. Embassies and commercial missions provide limited support. Reliable sector data is absent, and the sector lacks recognition as a strategic export category.

Recommendations

Develop Human Capital and Retain Talent Modernize curricula through industry-academia collaboration, offer tax relief for employees in export-oriented firms, and create industry-led certification programs in bookkeeping, payroll, and compliance support.

Enhance International Market Access and Commercial Diplomacy Run targeted international branding campaigns, leverage embassies for business development, and prioritize expansion into Gulf, UK, Australia, and selected European markets.

Accelerate Technology Adoption and Digital Competitiveness Streamline forex procedures and subsidize professional software, promote AI and cloud adoption, and enact data protection and cybersecurity legislation.

Strengthen the Business Ecosystem Grow domestic demand for outsourced services, shift firms toward higher-value BPM and GCC models, and develop dedicated business services hubs with reliable infrastructure.

Improve the Regulatory and Business Environment Simplify and harmonize provincial tax regimes, streamline forex procedures, and address barriers that discourage international firms from operating in Pakistan.

Provide Institutional Support for Professional Services Recognize the sector as a standalone export category, establish a dedicated export promotion framework, and create a national professional services directory to connect firms with international clients.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Pakistan’s agricultural marketing system is a complex but functional ecosystem that supports both rural livelihoods and national food supply. At its core are traditional wholesale markets (mandis), intermediaries such as commission agents (aarhtis) and aggregators, and a nascent layer of formal market institutions including warehouse receipt systems and exchange-based trading. While this system is resilient and solves critical problems such as liquidity access, market linkage, and informal enforcement, it also generates inefficiencies, including weak price transparency, inconsistent quality valuation, and limited risk management options for farmers.

Most farmers operate under constraints such as small volumes, lack of storage, and immediate cash needs, often tied to informal credit arrangements with intermediaries. As a result, their bargaining power is limited, and sales decisions are driven more by urgency than price optimization. In mandis, price discovery occurs through rapid, opaque bargaining rather than transparent mechanisms, leading to discrepancies between reported wholesale prices and actual farmer earnings. Intermediaries persist because they bundle essential services—credit, aggregation, logistics, and settlement—which are not yet adequately provided by formal systems.

Market dynamics vary significantly by crop type. Perishables, due to their time sensitivity and lack of cold storage, expose farmers to sharp price volatility and distress selling. In contrast, storable crops such as wheat and rice offer greater potential for improved outcomes through storage and delayed sales, especially when supported by financing mechanisms. Government policy plays a particularly strong role in staple markets like wheat, where procurement and stock management influence price expectations. However, recent shifts toward reduced public procurement and greater private sector participation require credible and stable policy frameworks to succeed.

Efforts to modernize the system have introduced tools such as Electronic Warehouse Receipts (EWRs), enabling farmers to store produce in accredited facilities and access bank financing using stored commodities as collateral. While promising, this formal layer remains limited in scale due to gaps in infrastructure, grading standardization, and financial inclusion.

Key structural challenges include weak price discovery, lack of standardized quality grading, widespread distress selling, reliance on intermediaries, and limited access to formal storage finance. Addressing these requires a phased and integrated reform approach. Priorities include improving transparency and infrastructure in mandis, establishing reliable grading and testing systems, scaling accredited warehousing, expanding EWR-based financing, and reducing policy uncertainty to encourage private investment.

Ultimately, modernization should focus on integrating, rather than replacing, existing systems by unbundling and upgrading the core functions currently performed by intermediaries. A gradual, commodity-specific approach—anchored in better storage, finance, and transparent price signals – can enhance farmer incomes, reduce volatility, and create a more efficient and resilient agricultural market system.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. 

Cold chain infrastructure is a critical missing link in Pakistan’s agricultural transformation. Agriculture contributes around 24% to GDP and employs 37% of the labour force, while livestock alone accounts for nearly 60% of agricultural GDP. Within this system, horticulture (fruits and vegetables) represents a strategically important but underdeveloped segment, with a market size of approximately USD 15 billion and strong export potential. Despite this scale, Pakistan continues to export low-value, raw commodities due to severe post-harvest inefficiencies and the absence of an integrated cold chain system.

Post-harvest losses (PHL) are the most significant constraint in the horticulture value chain. Estimates suggest that 30–40% of fruits and vegetables are lost annually, equivalent to $700 million to over $1 billion in economic value. Losses are especially severe for mangoes, kinnow, tomatoes, and potatoes, while dairy losses reach 15–20% of total production, amounting to 10–12 billion litres of milk wasted annually. These losses directly reduce farmer incomes, who typically capture only 15–20% of final retail value, and contribute to recurrent market gluts and distress sales. The absence of cold storage is therefore both a food security challenge and a structural driver of rural poverty.

Pakistan’s cold chain infrastructure remains highly underdeveloped. Total cold storage capacity is below 1 million tons against annual fruit and vegetable production of 13–14 million tons, resulting in coverage of less than 8%. Existing infrastructure is uneven and largely commodity-specific: potato-optimized cold rooms dominate, controlled atmosphere (CA) facilities are extremely limited, and farm-gate cold storage is virtually absent. Transport infrastructure is similarly weak, with minimal penetration of refrigerated trucks and heavy reliance on open transport systems that compromise product quality. Dairy cold chain coverage is also fragmented, with only around 5% of milk entering formal, temperature-controlled supply chains.

Three structural constraints explain persistent underinvestment. First, fragmented value chains prevent any single actor from capturing sufficient returns to justify cold chain investment. Second, cyclical price volatility discourages storage investment, as actors sell during high-price periods and avoid storage despite its long-term benefits. Third, investment patterns are geographically concentrated and imitation-driven, leading to clustering in a few commodities (notably potatoes) while high-value crops remain underserved. Policy failures, including ad hoc import responses and weak market coordination, further exacerbate volatility.

International evidence, particularly Morocco’s Plan Maroc Vert, demonstrates that coordinated public investment, aggregation mechanisms, and anchor buyers can successfully trigger private cold chain expansion. Pakistan’s own potato and dairy sectors confirm this dynamic, where integrated processors have enabled the development of functioning storage networks.

The brief proposes a National Cold Chain Development Program anchored by a dedicated financing facility, fiscal incentives, and geographically targeted agri-clusters. Priority interventions include farm-gate solar cold rooms, controlled atmosphere storage expansion, milk chilling coverage targets, and a demonstration CA facility for horticulture. Critically, the strategy emphasizes attracting anchor investors and enabling first-mover projects that can trigger wider private sector participation.

Cold chain investment is among the highest-return opportunities for Pakistan’s agricultural economy, with the potential to significantly reduce losses, stabilize prices, improve farmer incomes, and unlock export diversification.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. 

Pakistan’s agricultural sector, contributing 24% to GDP and employing 37% of the labour force, produces adequate quantities of major crops such as wheat, rice, and maize. However, recurring grain shortages, price volatility, and import dependence stem not from production shortfalls but from systemic inefficiencies in storage and distribution. Post-harvest losses exceed $1.3 billion annually, highlighting structural weaknesses that undermine food security, fiscal stability, and farmer incomes.

The storage ecosystem is fragmented and outdated. Around 60% of wheat is stored at the farm level using traditional methods such as jute bags, mud bins, and open-air ganjis, exposing grain to pests, moisture, and contamination. Public-sector storage, managed by PASSCO and provincial food departments, is both insufficient and deteriorating, with limited capacity for modern practices like temperature control and effective fumigation. While modern silo storage exists, it is largely confined to private processors and remains inaccessible to farmers and small traders.

A key structural inefficiency lies in the bag-based supply chain, where grain is repeatedly packed, unpacked, and transported. This leads to high handling costs and losses, estimated at $1.5 billion annually in Punjab alone. Transitioning to bulk handling and modern warehousing could reduce these costs by up to 65%, offering significant efficiency gains.

Smallholder farmers, who dominate the sector, bear the greatest burden. Lacking storage and access to finance, they are forced into distress sales immediately after harvest when prices are lowest. This dynamic shifts value to intermediaries, particularly aarhtis, who provide credit and storage at high implicit costs. The absence of formal storage and financing mechanisms limits farmers’ ability to benefit from price fluctuations.

Efforts to modernize the system through Electronic Warehouse Receipts (EWRs) present a viable solution. EWRs allow farmers to store produce in accredited facilities and access bank financing, reducing distress sales. Institutional progress, including PMEX’s acquisition of Naymat Collateral, has strengthened the link between commodity markets and storage. However, expansion remains constrained by regulatory risks, especially anti-hoarding laws, and the limited inclusion of wheat in the EWR system.

The shift from a government-led storage model to a market-based system has been uneven. Historically, public procurement under the minimum support price regime dominated but proved fiscally unsustainable. Its withdrawal, without a developed private storage market, has increased price instability. Proposed hybrid models involving private participation in strategic reserves have yet to materialize due to policy uncertainty.

Addressing the storage gap requires an estimated 7.9 million tons of commercial warehousing capacity. Reform priorities include expanding EWRs to wheat, leasing public storage to private operators, and integrating aarhtis into formal systems. Medium-term measures should focus on developing aggregation hubs with drying facilities, improving grading systems, and attracting large-scale private investment.

International experience, particularly India’s NBHC model, demonstrates that aligning commodity exchanges with warehouse receipt systems can drive rapid transformation. Pakistan has established foundational elements but requires stronger policy support, legal protections, and investment.

Ultimately, Pakistan’s storage challenge is institutional rather than technological. With the right policy framework and sustained commitment, a modern, efficient storage system can reduce losses, stabilize markets, and improve farmer welfare.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. 

Agricultural mechanization in Pakistan has grown over time but remains uneven, fragmented, and well below global benchmarks, limiting its contribution to productivity and farm incomes. With farm power at just 0.09 horsepower per acre – far below the recommended 1.4–1.8 hp – there is a clear structural deficit in mechanical capacity. While tractors are widely used and operations like land preparation and threshing are largely mechanized, key stages such as sowing, transplanting, and harvesting remain inefficient or manual in many areas. This partial mechanization constrains yields and contributes to significant post-harvest losses.

A major issue is the widespread use of outdated and poorly maintained machinery. Combine harvesters, often averaging around 40 years old, are typically imported near the end of their lifecycle and kept running through temporary fixes. Although this reduces upfront costs, it leads to inefficiencies, including grain losses of 10–15% in major crops like wheat and rice—equivalent to about USD 1.5 billion annually. The use of mismatched machinery, such as wheat combines for rice harvesting, further reduces quality and increases losses. Regional disparities also exist, with Punjab relatively more mechanized, while Sindh relies heavily on manual harvesting due to unsuitable soil conditions for heavy machinery.

Pakistan’s smallholder-dominated farm structure means most farmers cannot afford to own machinery and instead depend on rental services. These service providers are central to mechanization access but face challenges such as inconsistent demand, limited scale, and peak-season shortages. As a result, timely availability of machinery remains a persistent issue.

The mechanization ecosystem involves government programs, private suppliers, and development partners. Public initiatives, such as the successful promotion of laser land levelling in Punjab, show that targeted support and private sector engagement can drive adoption. However, weak standards, limited testing, and poor after-sales services continue to undermine equipment quality and reliability.

Several interconnected constraints hinder progress. High machinery costs, exchange rate volatility, and limited access to credit push farmers toward cheaper but inefficient equipment. Tax and duty structures further raise costs and discourage formalization. Additionally, shortages of skilled operators and mechanics, weak repair systems, and poor suitability of machines to local conditions reduce efficiency.

Going forward, the focus should shift from simply increasing machine numbers to building a reliable mechanization services ecosystem. Strengthening rental markets, promoting service hubs, improving standards, and enabling better access to finance are critical. Integrating mechanization with sustainability, particularly through better residue management, can also create economic value. Overall, a coordinated, system-wide approach is essential to unlock productivity gains and improve farmer incomes.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. 

The study finds that Pakistan trades almost nothing with the five EAEU member states i.e. Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, despite their combined GDP of $2.6 trillion and a population of 183 million. Exports stood at $355 million and imports at $667 million in 2024 and these figures have barely moved since the bloc’s inception in 2015. Two recent developments however have made the cost of that void impossible to ignore.

The closure of the Strait of Hormuz has disrupted the Gulf energy shipments Pakistan relies on and second is the  India‑EU Free Trade Agreement of January 2026 which has removed a 10 to 12 percent tariff advantage that Pakistani textiles held in European markets for two decades under the EU GSP+

Using mirror trade data from the International Trade Centre and UN Comtrade, Export potential under a comprehensive FTA with the EAEU exceeds $9 billion annually, with textiles and apparel accounting for more than half of the identified potential.

Figure a: Pakistan’s Export Potential by Strategic Cluster (Values in USD Million)

Note: Potential estimates assume full diversion of global trade flows to the bilateral corridor. Actual outcomes will depend on enabling factors. The realistic near‑term potential (10-15% capture) would be lower.

On the import side, the EAEU can supply nearly all of Pakistan’s crude oil, natural gas, diesel, fertilisers, polymers, and base metals.

Figure b: Pakistan’s Import Potential by Strategic Clusters (Values in USD Million)

Note: Potential estimates assume full diversion of global trade flows to the bilateral corridor. Actual outcomes will depend on enabling factors. The realistic near‑term potential (10-15% capture) would be lower.

Three operational shortcomings block the flow.

• First, no reliable cross‑border payment channel exists under sanctions. Banks hesitate to process transactions to Russia and Belarus. Workarounds through Dubai, Hong Kong, or cryptocurrency are inefficient and inaccessible to most firms.
• Second, no integrated logistics corridor for perishable goods has been developed. The overland route through Afghanistan is closed. The maritime route is slow and expensive. A new road corridor through Iran opened in April 2026, but it is not yet a fully functional
• Third, mutual recognition of sanitary and industrial standards has not been agreed. Every shipment faces fresh inspections.

A phased roadmap is recommended

The report recommends action across three time horizons. Each horizon addresses specific constraints.

Immediate (0‑24 months)

• Establish a government‑backed non‑dollar settlement channel using rupee‑ruble or rupee‑yuan accounts at designated public banks
• Back exports with export credit guarantees to de‑risk transactions for small and medium sized enterprises
• Reduce the LNG tariff on imports from 11 percent to 2‑3 percent
• Negotiate a limited preferential agreement covering textiles, agricultural products, and other low hanging fruits with high export potential
• Publish clear customs procedures for the Pak‑Iran Transit Corridor and negotiate transit agreements with Iran and Turkmenistan

Medium‑term (3‑5 years)

• Complete the Uzbekistan‑Afghanistan‑Pakistan railway line to cut transit time from 35‑45 days by sea to 20‑25 days by rail
• Negotiate mutual recognition agreements for phytosanitary, pharmaceutical, and industrial standards
• Formalise the role of the Belarusian Universal Commodity Exchange as a secure settlement platform
• Establish a joint working group with central banks to resolve operational payment issues

Long‑term (5+ years)

• Pursue a comprehensive free trade agreement covering all goods, services, investment, and government procurement
• Promote joint ventures in textiles where EAEU members supply machinery and technology and Pakistan contributes raw cotton and labour.
• Promote joint ventures in agricultural machinery by drawing on EAEU members with manufacturing capacity for tractors and harvesters to support local assembly in Pakistan.
• Position Pakistan as a regional energy trading hub by upgrading refining capacity and securing long‑term supply contracts with Russian and Kazakh producers

Political will is present

Kazakhstan and Uzbekistan sent their presidents to Islamabad in early 2026. Pakistan and Armenia established diplomatic relations. The EAEU and Pakistan agreed in April 2026 to form a joint feasibility study group. What remains is the detailed work of implementation. This report provides the evidence and the roadmap for that work. The cost of inaction is continued dependence on a single maritime chokepoint for energy and a single export market for manufactured goods. However, the cost of building the necessary infrastructure is manageable. The choice is whether to start now or to wait until the next crisis makes the decision unavoidable.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

However, this favorable trend is vulnerable to a structural fragility that this study has documented in detail. The growth is concentrated in the two service categories most sensitive to AI displacement. This is illustrated by the 41 percent drop in the median per-transaction value of freelance earnings between FY2021 and FY2025 (from USD 106 to USD 63) despite 114.6 percent growth in total freelance exports. The sector has an overwhelmingly micro-scale corporate base, with only 12 publicly listed IT companies out of 33,172 registered with SECP as of 31 December 2025 (0.04 percent). Out of an annual cohort size of approximately 43,000 IT graduates in Pakistan, only 10 to 12 percent are considered immediately employable without significant remediation, particularly to develop their soft skills. The regulatory, financial and infrastructural environment that would allow the sector to transition from price-arbitrage services to higher-value, AI-resilient capability centers is either absent or not functional in practice. This study identifies and discusses the constraints and suggests remedial action.

This study draws on: transaction-level SBP Balance of Payments data for FY2021–FY2025, the SECP database of registered IT companies; IGNITE programme data; HEC enrolment and graduate statistics, a structured survey of senior executives, stakeholder interviews and focus group discussions with freelancers, startups and captive office operators. The study identifies seven structural challenges and provides a set of policy responses, under the SCALE framework, designed to address them.

Sector Size, Structure and the Measurement Gap

Pakistan is a sizable global exporter of ICT services and the fastest-growing component of its own services export portfolio. The sector’s true size, however, is materially larger than official figures capture.

The SBP figure of USD 3.24 billion cannot be treated as a comprehensive measure but rather a base figure. Findings from this study indicate that actual IT-related earnings (including flows classified under personal remittance codes and revenues from foreign-registered Pakistani-founded firms) may be closer to USD 5 billion or more. The gap is not indicative of a coverage gap in total foreign exchange inflows but rather it suggests a classification issue within the Balance of Payments. This insight is extremely important for policy because currently, incentive programmes, PSEB registration benefits and sector-specific support are calibrated against the IT export classification rather than aggregate inflows.

 A critical analytical finding of this study is the structural composition of these exports. Freelance transactions constitute 90.8 percent of all recorded IT export entries (2.17 million of 2.39 million in FY2025) yet generate only 24.1 percent of total value[1].

The average software consultancy transaction is worth USD 12,618 while the average freelance transaction is worth USD 359 a ratio of approximately 35 to 1 by consultancy value, and 88 to 1 when compared against the average software export transaction of USD 31,699. The freelance distribution reveals an alarming dichotomy: 434,000 transactions (20 percent of the total) were below USD 18 each in FY2025, while the maximum recorded single transaction was USD 5.57 million. The average earnings floor for entry-level freelancers has shrunk significantly due to the proliferation of AI tools, while a small upper cohort of high-value practitioners captures disproportionate gains. The sector is stratifying and the distance between the two tiers is widening.

Seven Structural Constraints: Diagnosis

This study identifies seven interconnected challenges. These challenges do not exist in isolation and resolving any one of them without addressing foundational prerequisites has limited impact.

1. Human Capital: Quality, Leadership and the Talent Drain: Only 10 to 12 percent of Pakistan’s 43,000 annual IT graduates are immediately employable. The binding deficit is not technical capability but soft skills, professional conduct, client communication and reliability. No programme currently produces executives capable of scaling companies internationally, or cross-disciplinary profiles combining technology with domain expertise in finance, healthcare or legal services. Women represent only 21 percent of STP workers, and just 38,000 of 2.32 million registered freelancers with bank accounts are women, a growth capacity failure, not only an equity one.
2. Tax Architecture and Regulatory Design: The tax and banking architecture functions as a structural disincentive. No statutory distinction exists between a gig worker and a remote employee. FBR audit behavior treats legally exempt IT export income as contestable. Internet services carry a 34 percent effective tax. Import duties on laptops and cloud infrastructure taxes raise input costs on an export sector whose outputs are nominally incentivized.
3. Banking and Payments: The banking framework makes offshore retention the rational decision. There is no mechanism to hold dollar balances or accept card-based international payments through Pakistani banks. IT firms with stable USD revenues cannot access working capital because banks require physical collateral and do not accept software assets. FDI approval timelines exceed twelve months, and regulatory restrictions have resulted in the collapse of startup funding.
4. Ecosystem Gaps: Infrastructure and Data: Pakistan has only one to two Internet Exchange Points, making fixed broadband cost USD 0.53 per Mbps—6.6 times higher than India and 53 times higher than Romania. Pakistan’s ICT access index ranks 128th of 139 economies globally (WIPO GII, 2025). The Special Technology Zones Authority framework has been identified by board-level participants as the most prominent policy implementation failure in the sector’s recent history. Data fragmentation across SBP, SECP, PSEB, HEC and FBR compounds these gaps.
5. Products, Services, and Export Diversification: Pakistan’s export base is almost entirely cost-arbitrage services with no meaningful domestic product base. Government-owned IT entities develop software for government departments outside competitive procurement, displacing private firms from the contracts that serve as the capability-building and reference-deployment pathway to international markets. Pakistan is ranked 17th globally in mobile app downloads (1.42 billion in 2024) yet this segment is a blind spot in industry and policy. Space-tech, 5G-enabled services and semiconductor chip design remain unrecognized as export frontiers.
6. Country Brand and Market Access: Pakistan does not appear in Everest Group, Hackett Group or comparable IT delivery location assessments. It is not that it is evaluated and found inadequate, it is just not in the consideration set. Pakistan has very few captive ICT operations against India’s 1,700+, which generate USD 64.6 billion annually. Country-of-origin risk filters screen Pakistan out on political stability, cybersecurity posture and data protection grounds regardless of technical capability. Export concentration in the US and UK creates vulnerability to their policy shifts.
7. AI Transition: Displacement, Pricing Disruption, and Governance Vacuum: Pakistan faces two distinct AI challenges. First, workforce disruption: the sector is concentrated in staff augmentation and BPO, the categories most directly displaced by AI tools, and the 41 percent fall in median freelance transaction value is consistent with commoditization already underway. Second, an AI development failure: Pakistan has not built the compute infrastructure, data governance framework or regulatory environment to produce AI products. R&D expenditure stands at 0.16 percent of GDP (ranked 92nd globally). Failing on the first means losing the export base Pakistan has built; failing on the second means being permanently positioned as a consumer of AI rather than its producer.

What Needs to Be Done:

This study identifies 45 recommendations across seven challenge clusters, organized under the SCALE framework: Skills and Talent Pipeline Transformation, Captive and Corporate Attraction Strategy, Access to Markets and Finances, Legal and Regulatory and Digital Governance Reform, and Ecosystem and Startup Infrastructure. Recommendations are sequenced across three implementation horizons.

• Immediate Foundations (short-term): gazette a statutory freelancer definition; mandate SBP multi-currency receiving accounts; establish a 48-hour remittance processing standard; introduce IT Export Dollar Accounts; enact a statutory FBR safe harbour on exempt IT export income; launch a 5-year cross-party IT sector policy stability compact; deploy a dedicated captive attraction function engaging Everest, Hackett and Gartner; establish a Pakistan Startup Fund with a 30-day decision SLA; and create a 60-day FDI fast-track channel.
• Structural Reforms (medium-term): reform PPRA procurement to include an IT stream with a 25-percent SME quota; introduce a 20-percent domestic price preference for government IT procurement; phase government-owned IT entities out of commercial contracting; enact the Personal Data Protection Act and initiate the EU adequacy pathway; reduce internet effective tax from 34 percent to 10 percent or below; establish a Global Tech Landing Pad; reform university curricula with 30-percent industry co-design and mandatory practicums; and introduce per-hire grants of 15-percent salary reimbursement.
• Transformation Investments (long-term): develop a National AI Strategy with sovereign compute infrastructure; establish a Yozma-style matched VC fund (USD 200M); build six IXPs nationwide with an open-access fiber backbone; create chip design labs at NUST, GIKI, UET and NED; and develop the Pakistan Stack—an open digital identity layer, payment rail and public API framework to create domestic reference deployments that can be commercialized globally.

The data analysed for this study makes the strategic imperative clear. Pakistan has built a legitimate and growing IT export base under conditions that have constrained it at every stage. The sector’s next growth phase requires moving from informal and fragmented participation in global IT markets to structured, policy-enabled, high-value delivery before AI displacement and market-access barriers permanently foreclose that transition.

[1] This number represents bank remittance-receipts rather than distinct individuals, consistent with the official SBP methodological position. The 2.17 million counts therefore sets an upper bound, not a headcount of freelancers.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk