The right kind of imports

Pakistan is preparing its next Strategic Trade Policy Framework for 2026–31 as it seeks to convert renewed macroeconomic stability into sustained, export-led growth.

With the framework expected to advance an ‘export-first policy’ orientation, the challenge is to strengthen exports without allowing import demand to recreate the external imbalances of previous economic cycles.

This requires distinguishing consumption imports from the machinery, raw materials, components and technology that build productive capacity, domestic value addition and export competitiveness.

The latest data illustrate this balance. Pakistan’s current-account deficit narrowed from $814 million in June to $328 million in July. The improvement is encouraging, but it was supported substantially by $3.63 billion in workers’ remittances. Goods exports were approximately $3 billion, imports exceeded $6 billion and the goods-and-services deficit remained around $3.37 billion.

Customs data present a similar picture. Exports rose 10.4% year-on-year in July, while imports rose 18.9%, producing a merchandise trade deficit of almost $4 billion. The concern is that faster import growth could widen external financing requirements. But aggregate figures do not reveal the economic purpose of imports.

Machinery that raises productivity, raw cotton processed into exported garments, chemicals used by pharmaceutical firms and components incorporated into engineering products differ from finished consumption goods. Some of July’s import growth came from electrical machinery, metals and industrial inputs. These immediately increase foreign-exchange demand but may also support investment, production and future exports. The relevant question is therefore how to facilitate imports that build productive capability while managing those that primarily add to consumption and external pressure.

Pakistan’s trade-policy framework has lately recognised much of this relationship. The Strategic Trade Policy Framework 2020–25 explicitly identified high tariffs on primary and intermediate inputs as a constraint on export competitiveness. It also acknowledged that the longstanding use of tariffs primarily as revenue instruments, rather than tools of trade and industrial policy, had created distortions and reinforced an anti-export bias.

The framework called for duty-free access to imported inputs, internationally competitive input prices, tariff rationalisation and removal of anomalies across manufacturing value chains. It proposed simpler, more automated duty drawback, better mapping of import and export procedures, periodic rationalisation of the Import and Export Policy Orders and integration with the Pakistan Single Window.

One of its most important observations concerned practical access. Only around 5% to 6% of exporters were using export-facilitation schemes because compliance was difficult. STPF 2020-25 sought to raise utilisation to 50% by 2024-25, particularly among SMEs. The next stage of reform can build on this diagnosis by making existing facilities simpler, more predictable and more widely usable.

The National Tariff Policy 2025–30 provides an important foundation. It proposes eliminating Additional Customs Duties within four years and Regulatory Duties within five, reducing the trade-weighted tariff to below 6%, simplifying tariff slabs and moving concessions from the Fifth Schedule into a more transparent structure.

Consistent implementation would reduce production costs and dependence on firm-specific concessions. Tariff reform alone, however, cannot address every constraint. Exporters also need clear contracting and payment routes, efficient warehousing, predictable foreign-exchange treatment and workable arrangements for temporary, returnable and free-of-cost imports.

Bangladesh’s new Import Policy Order offers a timely peer example. Issued on August 24, it removes the previous general monetary ceiling for industrial and commercial imports conducted without letters of credit through sales or purchase contracts. Under the previous framework, commercial imports through this route were generally capped at $500,000 annually.

The order does not remove banking, foreign-exchange or regulatory oversight. Instead, it gives businesses greater flexibility in selecting a transaction structure recognised by the authorities. It also expands free-of-cost facilities for export-oriented manufacturers, covering specified samples, production inputs, specialised machinery parts and certain safety and compliance equipment supplied without direct overseas payment by the importer.

Bangladesh has also introduced explicit provisions for free trade zones and central bonded warehouses, facilitated imports of machinery and inputs for approved industrial investments by expatriate Bangladeshis and incorporated authorised economic operators and preferential trade arrangements into the framework. This is not blanket liberalisation; importer registration, product restrictions, HS classification, origin, valuation and sector-specific approvals remain applicable. Nor should Pakistan reproduce the approach mechanically as the two countries have different industrial structures and foreign-exchange conditions.

The relevant lesson is how transaction routes, production inputs, warehousing and importer responsibility can be brought together within a more integrated framework. Bangladesh’s textile producers, however, are concerned that easier access to imported inputs could weaken domestic backward linkages. Wider use of free-of-cost and non-LC transactions can also create risks involving valuation, related-party transactions, offshore settlement and trade-based money laundering. These concerns require risk-based supervision alongside facilitation.

Pakistan, too, continues to update its import regime. SRO 1207(I)/2026, issued by the Ministry of Commerce on July 29, amended the Import Policy Order 2022. It removed selected waste and scrap tariff lines from the prohibited list, deleted numerous entries from restricted schedules and allowed specified electronic and medical-equipment classifications to be imported in used or second-hand condition.

The SRO confirms that the Import Policy Order is being actively reviewed. This product-level rationalisation can now be complemented by a broader assessment of how import transactions are structured and processed. The objective need not be fewer controls in every case. It should be clearer, faster and more proportionate controls.

A reported proposal to allow temporary imports of used vehicles and auto parts for refurbishment and re-export illustrates the value of coordinated rule-making. The proposal required related amendments to the Import Policy Order and Export Facilitation Scheme rules covering eligibility, security, reconciliation, re-export and disposal of residual parts. It was not incorporated into the Finance Act 2026, the available consolidated EFS rules or SRO 1207(I)/2026. The proposal may still proceed separately, but it shows why commercially viable export activities often require several regulatory instruments to move together.

The Export Facilitation Scheme similarly provides a strong base that can be made more accessible. It enables direct and indirect exporters, commercial exporters and toll manufacturers to obtain inputs without upfront duties and taxes. It also provides for common export houses, which could be particularly valuable for SMEs. Participation may nevertheless involve security instruments, production-capacity verification, input-output coefficients, vendor declarations, utilisation periods, inventory traceability and audits. These safeguards protect revenue and discourage domestic diversion. The opportunity is to apply them proportionately so that compliant smaller firms can participate without developing the regulatory capacity of large corporations.

Greater flexibility should be matched by better information rather than uniform documentary requirements. A letter of credit is a useful payment and risk-management instrument, but it cannot by itself address all money-laundering and valuation risks.

Free-of-cost goods should carry a reasonable customs value, a clear commercial rationale, disclosure of the relationship between supplier and importer and a statement of intended use. Repetitive, high-value and related-party transactions should receive enhanced scrutiny and Pakistan Single Window and WeBOC should connect more effectively with banking transactions, tax records, beneficial-ownership information and regulatory approvals. Consistently compliant traders should also receive faster treatment, while higher-risk transactions face proportionate inspection and post-import audit.

As STPF 2026–31 is finalised, it can build on the diagnosis and institutions already established. A focused agenda could clarify alternative transaction routes, expand shared bonded facilities and common export houses for SMEs, create predictable channels for export-related inputs and strengthen integrated risk management. Each initiative should be accompanied by the required SROs, procedures, digital systems and clear institutional responsibility.

That said, with imports growing faster than exports, reserves plateauing and inflationary pressures strengthening, external discipline remains necessary. But external stability and productive-import facilitation need not conflict. Scarce foreign exchange should support investment, competitiveness and future earning capacity.

STPF 2020–25 asked the right questions. STPF 2026–31 now offers an opportunity to carry that agenda forward by aligning tariff reform, import procedures, foreign-exchange rules and customs facilitation.

Pakistan’s export ambitions will become more credible when firms can access productive imports quickly, predictably and under proportionate safeguards. An economy that wants to export more must also learn to import strategically.

The writer is a research fellow at the Sustainable Development Policy Institute (SDPI), Islamabad.

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News