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

This study has been undertaken as part of the Pakistan Business Council’s Make-in-Pakistan initiative, with the objective of identifying key constraints and opportunities within the domestic fan industry and proposing actionable recommendations to enhance its competitiveness. Conducted in close collaboration with the Engineering Development Board and the Pakistan Electric Fan Manufacturers Association, the report combines industry insights, stakeholder consultations, and data-driven analysis to provide a comprehensive assessment of the sector.

The findings highlight critical issues such as dependence on imported raw materials, gaps in skilled labor, tariff anomalies, limited access to international certifications, and underutilized production capacity. At the same time, the study underscores significant opportunities arising from growing domestic demand, increasing global need for energy-efficient cooling solutions, and substantial untapped export markets across Europe, Africa, and the Middle East.

A key message of this report is that Pakistan’s domestic fan industry has already demonstrated its capacity for technological adaptation through the successful localization and large-scale production of energy-efficient DC, BLDC, and inverter fans. Building on this achievement, the next phase of growth will depend on targeted policy support, improved institutional coordination, and strategic upgrades in areas such as raw material sourcing, skills development, testing and certification infrastructure, and market access. With these enablers in place, the industry is well-positioned to enhance its cost competitiveness and significantly expand its footprint in global markets.

It is hoped that this report will serve as a useful resource for policymakers, industry stakeholders, and development partners in shaping a more competitive, resilient, and export-oriented domestic fan industry in Pakistan.

The report finds that regulatory friction is most severe after business entry, embedded across the day-to-day operating lifecycle. Three systemic issues persist: fragmentation across agencies, partial or manual processes, and discretionary enforcement. Digitization efforts have largely failed to address the core issue because they focus on application intake and tracking, while final approval decisions remain manual, perpetuating uncertainty and opportunities for rent-seeking.

Beyond what can be measured, the regulatory burden is broader and more complex. Businesses face duplicative NOCs, lengthy product registrations across jurisdictions, repetitive licensing requirements, and a slow judicial system with no predictable timelines for dispute resolution. These hidden frictions significantly increase the cost of compliance and discourage formalization.

Stakeholder interviews across sectors confirm a consistent pattern: regulatory complexity, policy instability, uneven enforcement, delayed refunds, and restrictions on capital flows are among the most binding constraints. Additional burdens—such as opaque security clearance processes and discretionary controls over royalty and technical payments—further undermine investor confidence. Importantly, businesses are not seeking deregulation but rather clear, stable, and fairly enforced rules.

International experience shows that effective reform lies in simplification, risk-based regulation, and full-cycle digitization. Countries such as Malaysia, Vietnam, and Indonesia reduced compliance burdens by centralizing approvals, introducing risk-tiered systems, and ensuring that digitization includes automated decision-making, not just process management.

Pakistan has initiated reforms through the Asaan Karobar Act 2025 and the Pakistan Regulator Reforms 2025 program, which have introduced institutional mechanisms and reduced some compliance costs. However, progress remains constrained by limited scope and weak execution, with only 16% of proposed reforms completed. Critical areas such as tax administration, judicial processes, and enforcement practices remain largely unaddressed.

The report identifies three key gaps: reforms are procedural rather than structural, execution is weak, and digitization is incomplete. To address these, 17-point reform agenda is proposed across four areas: structural simplification, transparency and predictability, market facilitation, and enforcement fairness. These reforms are sequenced into three implementation tiers—immediate administrative actions, inter-agency coordination measures, and longer-term legislative changes.

In conclusion, Pakistan’s challenge is no longer diagnosing regulatory inefficiencies but implementing reforms effectively and addressing core cost drivers. Without improving the post-entry business environment—particularly in taxation, trade facilitation, and dispute resolution—Pakistan is unlikely to achieve the investment levels required for sustained economic growth.

The study adopts a multilateral framework to analyze REER behavior and its interaction with export performance, inflation differentials, capital flows, and industrial profitability. Pakistan’s historic experience shows that sustained real overvaluation has generally weakened exports, while periods of real adjustment have tended to support competitiveness. This perspective is particularly relevant in an environment where exchange-rate dynamics are influenced not only by trade flows but also by external financing, reserve accumulation, and policy credibility.

Recent exchange-rate stability has been underpinned by IMF-anchored inflows, bilateral rollovers, strong remittance growth, and improved foreign-exchange market functioning. These factors have helped contain volatility and anchor expectations even as import demand recovered. At the same time, higher domestic inflation relative to trading partners has kept the real exchange rate mildly elevated, indicating that nominal stability has not translated into a corresponding improvement in external competitiveness.

The study situates these trends within Pakistan’s broader macroeconomic context, in which exchange-rate outcomes reflect persistent trade-offs between inflation control, growth, and competitiveness. While reserve accumulation has strengthened short-term buffers and reduced near-term volatility, structural trade imbalances and continued reliance on external financing continue to shape the real exchange rate. Experience suggests that delaying real adjustment increases the risk of abrupt and disruptive corrections.

Overall, the study underscores the importance of distinguishing between nominal exchange-rate stability and real competitiveness when assessing Pakistan’s external position. By focusing on REER dynamics, it provides a clearer framework for understanding how inflation differentials and external inflows influence trade performance and external sustainability over time.

Expert Input and Policy Recommendations

These recommendations, informed by expert input from a prominent Pakistani economist and a former Governor of the State Bank of Pakistan, supported by secondary research, emphasize that exchange-rate management must be complemented by stronger fiscal transparency, reduced reliance on debt-driven inflows, and structural reforms to improve export competitiveness.

Maintain a Market-Based Exchange Rate with Gradual Adjustment

• Support a managed-float regime where market forces determine direction while the SBP smooths excessive volatility.
• A gradual, market-aligned depreciation path should reflect underlying conditions, shifting policy focus toward export-led foreign exchange generation.

Strengthen Transparency of External Liabilities and Fiscal Risks

• Pakistan’s cash-based accounting framework obscures liabilities from SOEs and government guarantees not fully reflected in official figures. Recognizing and consolidating these liabilities is critical for realistic REER assessment and external sustainability analysis.

Adopt a Broader Framework Beyond REER for Policy Assessment

• REER should not be used as a standalone indicator; structural distortions limit its ability to reflect the true equilibrium exchange rate.
• Structural reforms in energy pricing, taxation, logistics, and productivity are essential to support export growth.

Rationalize Domestic Cost Structures to Support Exports

• Higher tariffs on industry raise production costs, offsetting gains from exchange-rate adjustment.
• Reforming subsidy structures, particularly for domestic consumers, addresses cross-subsidization and improves competitiveness more sustainably than depreciation alone.

Allow Exchange Rate Adjustment to Reflect Underlying Fundamentals

• A moderate exchange-rate adjustment (around 5-10%) may be required to align the currency with underlying fundamentals.

Strengthen Trade Facilitation and Global Value Chain Integration

• Competitiveness depends on logistics, cost efficiency, and trade facilitation, not just exchange-rate levels.
• Policy should enable firms to integrate into international production networks and diversify export markets.

Improve Data Transparency and Institutional Capacity

• Ministries lack accurate data on external obligations, with some relying on external agencies for verification.
• Strengthening data systems is essential for credible macroeconomic and exchange-rate policy.

Transition to Accrual-Based Fiscal Accounting

• Shifting from cash-based to accrual accounting will ensure liabilities, including guarantees, are recorded when incurred rather than when paid.
• This will improve decisions related to debt sustainability and exchange-rate management.

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 European Union and India

On January 27, 2026, India and the EU finalized a historic FTA at the 16th India-EU Summit in New Delhi, concluding negotiations that began in 2007. The agreement creates a free trade zone of nearly 2 billion people with a combined market of over €22 trillion, accounting for one-fifth of global GDP and one-quarter of the world’s population. With bilateral goods trade already at €120 billion annually (plus €59.8 billion in services), the FTA is expected to double EU goods exports to India by 2032. This agreement represents the most ambitious trade liberalization India has ever granted and one of the largest trade agreements ever negotiated.

In August 2025, the US imposed punitive tariffs of up to 50% on 70% of Indian exports—including textiles, auto parts, steel, gems, pharmaceuticals, and chemicals—due to India’s Russian oil imports. The Kiel Institute estimated this would reduce India’s output by 1.64% (≈€53 billion annually). Meanwhile, the US also threatened tariffs on European goods in early 2025 over Greenland-related disputes, prompting India-EU collaboration.

The agreement provides unprecedented market access on both sides, with the EU eliminating tariffs on over 90% of tariff lines (99.3% by value) and India eliminating tariffs on 86% of tariff lines (96.6% by value). Overall, the tariff reductions will save around €4 billion per year in duties on European products.

The European Union and Pakistan

The EU is Pakistan’s third largest export destination and second-largest trading partner overall. Total bilateral trade stood at approximately €12 billion in 2025. Pakistan’s exports to the EU reached €8.69 billion in 2025. Since 2014, Pakistan has benefited from the EU’s GSP+ scheme, which grants duty-free access to approximately 66% of its tariff lines.

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. The EPD Matrix below represent the analysis of the products with import value greater than €10 million on the HS-02 Level.

Rising Stars (High EU & Pakistan growth), led by textile articles (HS 63) and niche sectors like medical instruments (HS 90), are Pakistan’s top priority for investment. Lost Opportunities (High EU growth / Low Pakistan growth), including pharmaceuticals (HS 30) and machinery (HS 84) reveal critical underperformance in fast-growing EU markets. Falling Stars (Low EU growth / High Pakistan growth): mainly traditional textiles like cotton (HS 52) serve as stable cash cows needing efficiency and market defense. Retreat (Low EU & Pakistan growth) such as iron and steel (HS 72) and raw hides (HS 41) represent declining sectors with little strategic value.

Key Findings

1. Pakistan is the world’s largest beneficiary of the GSP+ scheme. Approximately 86% of its exports to the EU use these preferences, with a 95% utilization rate. This creates a “single-point-of-failure” risk; any change in GSP+ status would immediately jeopardize a significant volume in trade.
2. With the India-EU Free Trade Agreement finalized in early 2026, India’s current 12% tariff disadvantage in textiles is being phased out. Once India reaches zero-duty access, Pakistan will lose its tariff edge unless it improves quality and sustainability.
3. Pakistan has worked on improving its regional industrial competitiveness by implementing a major tariff reform in February 2026. By reducing electricity rates from a high of 11.9 Euro cents/kWh (which caused 150+ factory closures) to approximately 7.9–8.1 Euro cents/kWh. The revised tariffs are however officially notified to remain in effect only until December 31, 2026.
4. A critical layer of uncertainty is the expiration of Pakistan’s current GSP+ scheme in December 2027. This creates a “cliff-edge” scenario:
   1. Scenario 1 (Renewal with Conditions): Even if GSP+ is renewed, Pakistan will face continued compliance costs and periodic reviews, while India enjoys unconditional FTA access. The playing field will be tilted in India’s favor on certainty, if not on tariffs.
   2. Scenario 2 (Non-Renewal): If GSP+ is not renewed, Pakistan’s exports to the EU would revert to Standard GSP (with partial preferences) or Most Favored Nation (MFN) terms, facing duties of approximately 9–12%. In this scenario, Indian goods would have a 9–12% price advantage over Pakistani goods in the EU market.
5. Foreign Direct Investment (FDI): The India-EU FTA acts as a powerful magnet for investors, offering a stable, rules-based framework and access to a massive market. With 6,000 European companies already in India and goals to double bilateral trade, European firms are “preparing for a post-ratification phase” by expanding manufacturing in India.

Recommendations

1. Pakistan must stop futile comparisons with India and pivot inward, focusing on what it can uniquely offer the world. The India-EU FTA signals that relying on tariff preferences is outdated; instead, Pakistan needs a competitive, diversified export sector through energy cost reduction, compliance upgrades, market diversification, and securing GSP+ beyond 2027. Competitiveness, not fear, is the only durable defence.
2. Pakistan’s heavy reliance on cotton-based textiles (over 70% of exports) ignores the market reality that man-made fibers (MMF) now account for 74% of global fiber consumption. Shifting to MMF would break the climate-vulnerable “Cotton Trap,” reduce water footprints, and open high-value technical textile markets like medical gowns and automotive airbags—diversifying exports beyond shrinking traditional apparel segments.
3. Pakistan must launch an urgent diplomatic offensive to secure GSP+ renewal beyond 2027 by demonstrating compliance with 32 EU conventions and negotiating for ‘Single Transformation’ rules to access high-growth MMF segments. Resources should shift from declining products (basic bedlinen) to high-demand categories like athletic wear and medical textiles, while institutionalizing factory-level labor and environmental monitoring to pass the 2026 EU inspection.
4. Creating sector-specific credit guarantee schemes for high-potential export industries: Commercial banks often refuse to lend to exporters, especially in new or “high-potential” sectors (like IT, engineering, or pharmaceuticals) because they view them as risky. A credit guarantee scheme acts as a government-backed safety net. Pakistan already has the SME Asaan Finance (SAAF) scheme. This concept can be extended and refined specifically for “Export to EU” sectors, requiring less fiscal outlay than a bank and providing immediate liquidity to high-growth areas.

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 examines the major trade corridors linking Pakistan with Afghanistan, the Central Asian Republics (CARs), Russia, and beyond into Europe. It identifies key border crossings, transit routes, and road networks that facilitate regional trade flows, while also highlighting existing bottlenecks and inefficiencies affecting cross-border connectivity.

As part of this analysis, the study explores opportunities to enhance trade integration with Afghanistan, Central Asian Republic, (Turkmenistan, Uzbekistan, Tajikistan, Kazakhstan, Kyrgyzstan) Russia, and Europe focusing on both current infrastructure and future connectivity prospects. It also evaluates the long-term potential of developing these corridors into a more efficient and integrated regional trade network. The study is undertaken within the broader framework of promoting Pakistan’s role as a regional trade and transit hub. By identifying strategic opportunities and constraints, it aims to provide actionable insights and policy recommendations to strengthen connectivity, improve transit trade efficiency, and support regional economic integration between Pakistan, Afghanistan, Central Asia, Russia, and Europe.

Demographic and Economic Foundations

Pakistan’s large and growing population—exceeding 251 million in 2024—provides both a substantial domestic market and a labor base that can support trade-led growth. Although population growth has gradually moderated, urbanization is accelerating, reinforcing demand for infrastructure, logistics, and trade-related services. Economically, Pakistan showed signs of stabilization in 2024, with a GDP of US$380 billion and growth recovering to 2.26 percent, alongside a sharp decline in inflation. However, persistent trade deficits underscore structural weaknesses in export competitiveness and highlight the importance of leveraging transit trade as a complementary growth channel.

Pakistan–Afghanistan Trade Routes Connecting Major Cities

Pakistan’s overland corridors with Afghanistan serve as critical gateways for bilateral and regional trade, enabling access to Central Asian markets. Key routes—including Peshawar–Kabul, Ghulam Khan–Kabul, Quetta–Kandahar, Kamr-din-karez–Moqar and Angoor Adda–Ghazni—enhance cross-border connectivity, strengthen trade integration, and promote regional economic cooperation. Major border crossings such as Torkham, Chaman, and Ghulam Khan link Pakistani cities to key commercial hubs like Kabul, Kandahar, and Herat, facilitating efficient transit trade and supporting Pakistan’s role as a regional trade hub.

Figure: 1 Map of Pakistan’s Trade Routes to Afghanistan

Source: USAID| PREIA -Pakistan Regional Economic Integration Activity

Pakistan Transit Trade Corridor to Central Asia Via Afghanistan

Pakistan’s transit trade routes to Central Asia, using Afghanistan as a land bridge, are vital for enhancing regional connectivity and expanding economic opportunities. Key corridors—including Torkham, Ghulam Khan, Chaman, Badini Trade Terminal, and Zhob (Kamr-ud-Din Karez)—link Pakistan with major Afghan hubs such as Kabul and Kandahar, from where road networks extend to Turkmenistan, Uzbekistan, Tajikistan, Kazakhstan, and Kyrgyzstan. These routes facilitate the movement of goods, strengthen Pakistan’s regional trade presence, and support broader economic integration across South and Central Asia.

Pakistan– Afghanistan–Tajikistan Transit Trade Route

The Pakistan–Afghanistan-Tajikistan transit trade route provides an important regional trade link. The primary route originates in Peshawar, enters Afghanistan via the Torkham border, passes through Kabul, and continues to Sher Khan Bandar before crossing into Tajikistan and reaching Dushanbe. An alternative route runs from Pul-e-Khumri to the Hairatan border, transits through Uzbekistan, and then connects to Tajikistan, while also leading to Dushanbe as an alternate. Together, these routes enhance bilateral and regional trade connectivity and provide Pakistan with strategic access to Central Asian markets.

Figure: 2 Map of Pakistan’s Trade Routes to Tajikistan Via Afghanistan

Source: USAID | PREIA

Export Opportunities for Pakistan in the Central Asian Republics and Russia

Untapped Market Potential

The analysis reveals significant gaps between Central Asian Republics’ imports from the world and from Pakistan, indicating substantial untapped export potential. Despite strong global export performance, Pakistan’s market share in CARs remains limited, particularly in high-demand products.

High-Potential Product Categories

Key export opportunities exist in pharmaceuticals, citrus fruits, rice, potatoes, sugar, textiles, sports goods, soaps, and processed foods. Products such as medicaments, mandarins, rice, and sugar show high demand in the CARs markets, while Pakistan has proven export capacity in these sectors.

Priority Markets in Central Asia

Uzbekistan and Kazakhstan emerge as the largest and most promising markets, followed by Tajikistan and Kyrgyzstan, where Pakistani exports have shown gradual growth. Turkmenistan, although smaller, also presents opportunities in selected products.

Pakistan’s Export Opportunities, Potential, and Comparison of Key Economic Indicators with Central Asia and Russia (2024)

Pakistan’s exports to the Central Asian Republics (CARs) remain limited despite considerable potential. The estimated export potential is about $436 million, while current exports are only around $202 million, indicating a large untapped market. Among the CARs, Kazakhstan and Uzbekistan offer the greatest opportunities due to their larger economies, higher purchasing power, and sizeable populations. Beyond Central Asia, Russia represents an even larger market in the Eurasian region, with a GDP of about $2.09 trillion, a population exceeding 143 million, and relatively high per capita income, making it an important potential destination for Pakistan’s exports.

Table: 1 Pakistan’s Export Potential and Key Economic Indicators (2024)

Challenges

Worsening Internal Security Conditions in Pakistan

Border Provinces, particularly Khyber Pakhtunkhwa and Balochistan, have experienced rising security challenges due to increased militant activity. This has disrupted trade routes, heightened transportation risks, and increased the cost of doing business, negatively affecting trade with Central Asia.

Cross-Border Tensions and Regional Security Risks

Ongoing tensions between Pakistan and Afghanistan have resulted in periodic border closures, causing delays and supply chain disruptions. Persistent security concerns and the presence of militant groups continue to undermine the reliability of regional trade corridors.

Collapse of Transit Trade and Regional Connectivity

Transit traffic through Pakistan to Afghanistan and Central Asia has declined sharply, weakening Pakistan’s credibility as a transit hub. The near halt in trade with Afghanistan has further encouraged regional partners to seek alternative routes.

Loss of Export Markets and Trade Volumes

Trade disruptions have led to a significant decline in Pakistan’s exports to Afghanistan and Central Asia, particularly in cement, pharmaceuticals, and perishable goods. Export volumes have fallen sharply, reducing Pakistan’s presence in regional markets.

Payment and Financial Transaction Barriers

Pakistani exporters face serious payment constraints due to restrictions on the repatriation of foreign currency. The current limit of USD 5,000 per individual creates major difficulties for businesses involved in large-value transactions.

Recommendations

Strengthening Transit Trade Governance

Establish a National Transit Trade Coordination Mechanism under a central authority to ensure alignment among federal and provincial stakeholders, harmonize transit regulations, and streamline decision-making. A clear institutional ownership will reduce fragmentation and improve efficiency in transit operations.

Improving Border Management and Customs Facilitation

Upgrade border infrastructure at key crossings such as Torkham, Chaman, and Ghulam Khan, as well as emerging terminals like Zhob Kamr-Ud-Din Karez and Badini Trade Terminal. Introduce risk-based inspections, digital customs clearance, pre-arrival processing, and electronic documentation to reduce transaction costs and improve corridor reliability.

Upgrading Transport and Logistics Infrastructure

Enhance intermodal connectivity and logistics services by upgrading roads linking border terminals to national highways and ports. Invest in rail freight, dry ports, and logistics hubs along transit routes to support bulk and long-haul cargo movement. Public–private partnerships can accelerate these investments.

Enhancing Regional Agreements and Trade Diplomacy

Strengthen bilateral and regional transit agreements with Afghanistan, Central Asian Republics, Iran, China, Turkey, and Russia. Address non-tariff barriers, promote mutual recognition of standards and transit documents, and position Pakistan as a reliable regional transit partner.

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