DDT scheme has small positive impact on textile exports: World Bank
ISLAMABAD: Pakistan's Duty Drawback of Taxes (DDT) scheme had a small positive impact on aggregate textile exports, which masks substantial reallocation across products and induced an increase in exports of products eligible for the highest rebate rates at the expense of non-eligible, and of lower-rebate rate products, says the World Bank.
The bank in its 'Industrial Policy under Constraints: Evidence from Pakistan's Export Subsidy Schemes' report, stated that the scheme induced an increase in strategic misreporting at the border for non-eligible products.
For each $1 spent on the DDT schemes, only $1.1 were generated as additional exports, the bank added.
Business & investment: Shift to higher tariffs restricts exports growth for Pakistan: WB
The scheme is considered a key export promotion policy adopted by the Pakistani government for the textile sector, which accounts for 55 percent of total exports.
Prior to 2010, the subsidy scheme was implemented intermittently, with extremely limited budget allocations and frequent interruptions in disbursements.
At the end of 2014, the government launched a trade policy aimed at boosting textile exports, which involved a substantial increase in the budget allocated to the scheme. Over the period 2017-2020, funds allocated to the scheme reached about one percent of the total federal budget. The scheme targeted specific products and adopted heterogeneous rebate rates across eligible products, the bank added.
Analysis of exporters' transactions data reveals that the effects are partially explained by a shift in exporters composition, as entrants are less likely to be specialised in low-rate products while firms that exit the export market are those more likely to be specialised in lower-rate and non-eligible products.
The report said that strategic behavior, however, had a small overall impact on recorded exports, and does not explain the larger reallocation.
Results have broad implications and suggest that interventions targeted at specific products can lead to unintended reallocations, particularly if firms face capacity or financial constraints. The concentration of the export base into fewer products that increases the vulnerability of exports to product-specific shocks, should be weighed against the small aggregate effect of the scheme when evaluating the overall impact of this intervention, it added.
The study combines an event-study approach to exclude the presence of pre-trends with a synthetic control method to estimate the effects of the DDT scheme on Pakistani textile exports. Using product-level data, we show that products in different eligible categories were on similar trajectories before the introduction of the scheme.
Synthetic control estimates show that while the DDT scheme had only a small positive overall impact on textile exports, it induced re-allocation across products within the textile sector. More specifically, the policies induced an increase in exports of products eligible for the highest rebate rates at the expense of non-eligible or lower-rate products.
The bank stated that targeting export subsidies towards specific products might impact negatively other products, especially in a context where firms face capacity constraints. This could lead to an inefficient allocation of resources, as firms may divert attention and resources from non-subsidised to subsidised products, potentially harming overall export performance. These findings underscore the importance of monitoring the effects of such interventions.
A careful assessment of the capacity constraints faced by firms, along with an assessment of the features of the products to target, is crucial in the design of export subsidy schemes to ensure balanced and sustainable growth in the export sector.
The report stated that Pakistan has long been implementing measures to support exports. Traditionally, export promotion schemes were limited to five so-called 'zero-rated sectors': textiles, sports goods, surgical goods, leather and carpets. Over the last decade, however, there has been a growing consensus on the need for a level playing field, advocating for wider accessibility of these schemes. Hence, two main modalities have emerged.
Copyright Business Recorder, 2025
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
6 hours ago
- Express Tribune
US fund commits $10m to Pakistani startups
Listen to article A US tech fund has committed $10 million to two Pakistani IT entrepreneurs and IT experts have praised this move as it looks promising for the future. Tech analyst and expert Muhammad Yasir said that Pakistani IT firms are penetrating different traditional and non-traditional markets with their innovative products and services, which is a positive sign. Attracting investments from US-based companies will not only boost business growth and expansion of Pakistani IT companies but it will also improve the image of the country in the relevant sector, opening doors for other companies in high-end markets such as the US and EU. Pakistani IT companies need to reach more similar investors and venture capitalists in major traditional markets like the US, EU and non-traditional markets like the UAE and Saudi Arabia to expedite the overall growth of Pakistani IT exports and expansion. JR Dallas Tech Fund, the premier private investment arm of JR Dallas Wealth Management, announced a groundbreaking $10 million commitment to globally recognised technology leaders Mehwish Salman Ali and Malik Mudassir to spearhead an exclusive US-focused startup investment initiative. Under this landmark agreement, Mehwish Salman Ali and Malik Mudassir will receive $10 million in dedicated capital to identify, evaluate, and invest in high-potential startups planning to scale operations in the US. The duo will serve as lead investment partners with full authority to deploy capital across artificial intelligence, cloud computing, digital health, and frontier technology ventures. "We are entrusting $10 million to two of the most visionary technology leaders of our generation," said Jehangir A Raja, Managing Partner at JR Dallas Tech Fund. "Mehwish and Malik represent the perfect combination of technical expertise, entrepreneurial success, and strategic vision needed to identify the next generation of game-changing startups ready to conquer the American market." This $10 million commitment specifically targets startups with proven capabilities seeking to establish or expand operations within the US, creating a direct pathway for international innovation to contribute to American economic growth. The investment is likely to generate positive economic impacts as these companies are expected to generate 300-500 high-skilled technology positions within 24 months. Portfolio companies are projected to contribute $50-100 million in US economic activity within three years and accelerate breakthrough technologies in AI, healthcare, and cloud infrastructure. Mehwish Salman Ali brings unparalleled expertise as Founder & CEO of Data Vault, Pakistan's first solar-powered and quantum-encrypted AI data centre, Co-Founder of Zahanat AI, the country's first indigenous GPT model, and COO of AppsGenii Technologies. Malik Mudassir commands respect as Founder & CEO of AppsGenii Technologies, operating across the US, UK, and Pakistan, and Co-Founder of multiple successful ventures including GharPar, BoxesGen, and Dental Connect. The $10 million fund operates under a rigorous investment framework designed to maximise both financial returns and economic impact: "Receiving this $10 million commitment from JR Dallas Tech Fund represents more than capital; it's a mandate to bridge the gap between global innovation and American market opportunity," said Mehwish Salman Ali. "We are committed to identifying startups that not only promise exceptional returns but also contribute meaningfully to US technological leadership." Malik Mudassir added, "This $10 million investment enables us to support visionary entrepreneurs who understand that scaling in America requires more than great technology it demands deep market insight, operational excellence, and strategic partnership. We're here to provide all three."
Business Recorder
6 hours ago
- Business Recorder
Businessman says community optimistic about budget prospects
KARACHI: The Chairman of National Business Group Pakistan, the President of the Pakistan Businessmen and Intellectuals Forum, the President of All Karachi Industrial Alliance, the Chairman of the FPCCI Advisory Board, and the President and former provincial minister, Mian Zahid Hussain, said that the business community has high expectations from the new budget. He said that amid an ongoing economic crisis, high inflation, and widespread unemployment, the public is looking to the government for a budget that offers meaningful relief, enabling the industrial and trade sectors to move toward stability, ease of doing business, and growth. He said that the private sector seeks a budget that promotes investment, lowers production costs, broadens the tax base, boosts exports, eliminates the trade deficit, and helps the economy function at full strength. At the same time, an increase in the defence budget is essential. Concrete measures must also be introduced to promote austerity, control unnecessary spending, and curb corruption. Mian Zahid Hussain said the Pakistani economy has been under pressure for several years. While measures taken under IMF conditions helped Pakistan avoid default, they also burdened the population with unemployment and inflation. Given these circumstances, the new budget must combine public relief with structural economic reforms. He added that unnecessary subsidies should be eliminated, tax exemptions must be reviewed, government expenditures must be curtailed, and failing state-owned enterprises should be privatized. Mian Zahid Hussain emphasized that agriculture, IT, exports, and the SME sector must be prioritized for support so that they can generate jobs and strengthen the economy. Operationalizing special economic zones, ensuring uninterrupted and affordable energy supply, and improving infrastructure should also be priorities. He further stated that the budget should not be viewed merely as a tool for increasing revenue but rather as a means of promoting public welfare, industrial progress, and poverty reduction. Without a sustainable economic vision and a clear roadmap, temporary steps will yield no long-term benefits. He emphasized that the people of Pakistan have already made many sacrifices, and the time has come to offer them relief. If the government presents a well-directed and thoughtful budget, it will not only contribute to economic stability but will also help restore public confidence and bring political stability. Mian Zahid Hussain underscored the need for national consensus, wisdom, and foresight to steer the economy forward. All this is possible through a balanced, comprehensive, and people-friendly budget. He concluded by saying that if economic policies are continued without disruption, an investor-friendly environment is created, undue pressure on industrialists is alleviated, and the tax system is simplified and made fair, both domestic and foreign investment will increase. Taxpayers should be respected, and non-filers should be encouraged to bring themselves into the legal framework. Copyright Business Recorder, 2025
Business Recorder
6 hours ago
- Business Recorder
PHMA slams plan of distributing 2,000MW power to Bitcoin mining
LAHORE: The government's proposed plan of distributing 2,000 megawatts of excess power to Bitcoin mining and artificial intelligence (AI) data centers has faced harsh resistance from industrialists, merchants, and farmers, who contend that the power should be distributed among productive sectors to increase employment and economic growth. Sardar Usman Ghani, Central Chairman of the Pakistan Hardware Merchants Association, expressed serious reservations about the decision, saying that making available cheap electricity to a 'non-productive, speculative industry' is not justifiable when industry, agriculture, and labour-intensive industries are facing an energy crunch. It is shocking to learn that the government plans to export excess electricity to speculative activities such as Bitcoin mining rather than encouraging the productive industries' Ghani informed Business Recorder. 'The decision will not create jobs or drive actual economic growth. It will just promote a privileged group at the expense of industries, traders, farmers, and workers,' he added. The row is based on the government's alleged talks with Bitcoin miners and AI companies to provide them with electricity at subsidised tariffs to leverage surplus power generation capacity. Critics, however, say Pakistan's persistent energy shortfalls make such an allocation irresponsible, especially when industrial and agricultural sectors suffer intermittent outages. Industrialists and economists have raised questions regarding the economic logic of the decision, pointing to the specious nature of crypto currency markets. Bitcoin mining is extremely power-guzzling, and with electricity costs accounting for a large percentage of operating costs, critics say that the government stands to incur massive losses if prices of crypto currencies plummet. Additionally, the opacity in tariff fixation and the void of a proper regulatory structure for crypto currencies have further acted as repellents. The International Monetary Fund (IMF) has also asked for explanations from Pakistani officials, requesting information on electricity tariffs and the legal status of crypto mining. Virtual talks between Pakistani authorities and the IMF will soon be initiated to sort these issues out. Usman Ghani said that industrial sector of Pakistan has been known to face an unreliability of power supply, and allocating 2,000 MW for Bitcoin mining might be doing it harm. Business owners contend that giving higher preference to speculative activities over manufacturing, agriculture, and small business hampers the allocation of resources, which could dampen sector growth in areas generating jobs. Copyright Business Recorder, 2025
