The Express Tribune Features LSE Study on How Pakistan's Own Policy Volatility Fractures Export Growth and Drags the Economy

A new study by Lahore School of Economics (LSE) researchers Azam Chaudhry and Gul Andaman, featured in The Express Tribune, reveals that Pakistan’s export struggles are driven by domestic policy instability rather than global trade conflicts. While the historic US-China tariff war pushed Pakistan’s trade policy uncertainty index to 185, the country’s own Finance Act of 2024 sent it soaring to 348. This internal volatility causes massive economic damage, with a standard uncertainty shock immediately wiping out 10% of monthly goods exports ($230 million) and the larger Finance Act shock threatening monthly losses approaching half a billion dollars.

Analyzing over 5 million trade observations, the study found that rising uncertainty forces exporters to scale back order volumes and freeze expansion plans instead of abandoning markets entirely. Following a policy shock, capital goods imports plummet by nearly half as firms postpone buying machinery. While goods exports partially recover within a year, critical services exports like IT and software suffer a permanent drop with zero recovery. This persistent domestic instability also caused Pakistan to miss out on the massive trade reallocations captured by competitors like Vietnam and Bangladesh during the US-China trade war.

The researchers trace this volatile environment to structural flaws, notably the Federal Board of Revenue issuing over 300 Statutory Regulatory Orders (SROs) annually without parliamentary oversight, compounded by abrupt annual budget shifts and recurring IMF negotiations. The study concludes that policy stability is a vital instrument of competitiveness. To halt these severe, self-inflicted losses, the authors strongly recommend consolidating SRO authority, pre-announcing trade measures well ahead of the budget, and legally shielding exporters' tax structures from year-to-year legislative changes.