ADB warns against long-term protectionism

Express Tribune

06-05-2025

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The Asian Development Bank (ADB)'s Chief Economist, Albert Park, has expressed support for Pakistan's efforts to successfully complete its International Monetary Fund (IMF) Extended Fund Facility (EFF), noting that such a move would likely enhance Pakistan's standing with other international lenders, including the ADB itself. However, he warned that any hopes of a sharp drop in interest rates purely due to an IMF qualification may be unrealistic.
Responding to questions from The Express Tribune on the sidelines of the ADB's 58th Annual Meeting in Italy, the bank's chief economist said that an IMF deal acts as a "signal" of macroeconomic discipline and stability. "If the IMF comes to an agreement with Pakistan, that's important for the ADB. It means we feel Pakistan is more fiscally sound," the official explained. However, they added that while such agreements impact lending confidence, they do not automatically translate into lower interest rates from multilateral agencies like the ADB.
ADB lending decisions, he noted, are primarily based on a country's level of development and debt sustainability. "We don't want to lend to countries with unsustainable debt burden. But once there is a reform agreement in place, it opens up avenues for deeper engagement," the official said.
The ADB also weighed in on the ongoing debate in Pakistan about whether it should pursue protectionist industrial policies to shield local industries—at least in the short term—before liberalising trade. Addressing this, the official said that while historical examples exist of countries like Japan, India and South Korea using temporary protectionism during their early industrial phases, in many cases such protection becomes entrenched.
"In theory, temporary protection might help an industry grow, but in practice, protections often become permanent due to vested political interests," Park warned. "That leads to inefficiencies and higher costs, especially in today's globalised world where foreign direct investment depends on openness and predictability."
Instead, ADB official stressed that Pakistan and other South Asian economies, including India and Bangladesh, should focus on boosting exports, improving ease of doing business, and attracting foreign investment. Trade liberalisation and participation in global value chains were identified as long-term strategies for sustained economic growth.
On India, He said the country is well-positioned to benefit from shifting global supply chains, especially post-COVID. However, India needs to address infrastructure bottlenecks, reduce trade barriers, and improve its regulatory environment. "India remains relatively protectionist," said Park, cautioning that high tariffs on intermediate goods could make domestic industries less competitive globally.
In Bangladesh's case, officials noted that the country's slow integration into regional and multilateral trade blocs— such as ASEAN and RCEP—limits its export diversification potential. Currently, Bangladesh has only one bilateral trade pact, a preferential trade agreement (PTA) with Bhutan. ADB attributed this hesitation to fears of heightened competition, but stressed that greater openness could lead to long-term benefits.
The ADB also flagged growing concerns over escalating trade tensions globally, particularly involving the United States and China. The bank's April outlook forecasted Asia's growth at 4.9% this year and 4.7% for 2026, admitting that those figures did not account for recent reciprocal tariffs announced by Washington.
"The uncertainty itself is harming investment and production across Asia," the official said. "Increased volatility, especially from shifting trade policies, has led to a slowdown in manufacturing and weakened business confidence."