US tariff relief offers boost, but Pakistan's high production costs still hamper exports
However, this win may fall short of delivering substantial export gains unless Pakistan addresses persistent structural issues at home. Industry leaders and economists warn that high input costs—stemming from steep interest rates, costly energy tariffs, and reduced export financing incentives—continue to undermine the country's global trade competitiveness.
'The price of electricity remains the second-highest component after cotton in Pakistan's textile production costs,' said Jawed Bilwani, President of the Karachi Chamber of Commerce and Industry (KCCI).
Textile exporters alarmed by 19pc US tariff decision
He added that recent changes to the Export Finance Scheme (EFS) have also dampened export momentum. 'Retaining the EFS in its original form is vital for sustaining textile exports,' he emphasized.
According to Dr. Usama Ehsan Khan, Head of Research at the Policy Research and Advisory Council (PRAC), despite the lower US tariff, Pakistan may not see a significant shift in orders from global buyers unless input costs are brought down.
'The tariff cut helps retain volume in the US market, but high production costs keep Pakistan's export prices uncompetitive,' he said.
Khan pointed to three critical areas for immediate cost reductions: interest rates, power tariffs, and gas prices.
He noted that Pakistan's central bank has kept its policy rate at 11%—well above inflation, which has recently fallen below the targeted 5–7% range. Peer economies, by contrast, are operating with rates between 3% and 10%.
'There's room for Pakistan to bring interest rates into single digits,' Khan said, arguing that such a move would lower the cost of doing business, spur exports, and ease debt servicing. 'Every 1% cut in the policy rate reduces interest payments by Rs200–250 billion annually,' he added.
Power tariffs for Pakistani exporters, currently around $0.16 per unit, are also significantly higher than those in competitor countries, where rates range from $0.06 to $0.10. Khan suggested that Pakistan could lower electricity costs by shutting down expensive local plants and renegotiating contracts with foreign-owned independent power producers (IPPs).
Gas tariffs, another burden on exporters, also require downward revision, he said, noting that a strategic reduction would enhance Pakistan's appeal as a manufacturing hub.
A joint PRAC and KCCI infographic comparing Pakistan's input costs with those of regional competitors reveals further weaknesses. Pakistan's labor productivity, for instance, stands at just $7.20 in GDP per hour worked—well below the $8.70–$18 range of peer countries, except Cambodia, which stands at $4.
As global trade dynamics shift and buyers seek reliable, cost-effective sourcing destinations, experts stress that Pakistan must enact bold domestic reforms to fully capitalize on external trade opportunities like the US tariff cut.
'Without reducing production costs, Pakistan risks missing out on the benefits of this hard-earned trade advantage,' Khan cautioned.
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