By Shahid Sattar | Sarah Javaid
Pakistan’s implicit export strategy isn’t goods – it’s people. And the strategy continues. In a recent statement, the finance minister announced plans to train one million youth annually, priming them for jobs in Gulf economies, especially Saudi Arabia. The rationale? Pakistan’s skilled workers will power “Saudi Arabia’s transformation”, while the remittances they send back will help rescue Pakistan’s own faltering economy.

This policy begs three critical questions: Have we become a nation that equips its youth to build other economies? Has exporting people taken priority over exporting products?  And most importantly, have we embraced remittances as our default economic strategy?

For decades, Pakistan has leaned on remittances as a current account stabilizer. But let’s not mistake a dependence model for strategy. These dollar inflows aren’t the result of industrial upgrades or strategic reforms. They stem from the steady outflow of our manpower, intellect, and talent.

According to the World Migration Report 2024, Pakistan ranks 6^th globally in remittance inflows, receiving $30.2 billion – nearly 9% of GDP in FY24. In March 2025, monthly remittance inflows crossed $4 billion for the first time in the country’s history. If current trends hold, FY25 could close with an all-time high of $36 billion.

The statistics surrounding outward migration are staggering. In 2024, the number of Pakistanis leaving for overseas jobs jumped 69% from 2020. Nearly half of them were classified as ‘skilled labor,’ according to the Bureau of Emigration and Overseas Employment. With the finance minister’s latest announcement, it’s clear: emigration is no longer market-driven – it has evolved into a national strategy.

Had the country prioritized skills training to boost domestic productivity and promoted a conducive job market, much of this brain drain could have been redirected toward wealth generation through productive activities.

The irony is that the impact stretches beyond the brain drain. Ample research reveals that while remittances boost household income and consumption, they also create a cycle of dependency, diverting demand and resources toward non-tradable goods. This drives up prices in non-tradable sectors and undermines export competitiveness – classic symptoms of Dutch disease.

While economists continue to debate the extent of this effect, Pakistan’s case is hard to ignore. Our analysis shows a clear negative correlation between rising remittances and exports-to-GDP, coupled with elevated consumption and imports. Meanwhile, human development indicators remain dismally low, suggesting that the influx of dollars has not translated into long-term socio-economic prosperity.

While this article may not exhaust every channel through which remittances affect the economy, it definitely makes one thing clear: remittances, while taken as short-term buffers in Pakistan, are no substitute for a serious growth strategy.

Remittances vs Human Development:

Approximately 727,000 Pakistanis left the country in 2024, and by March 2025, an additional 172,000 had followed. As a result, Pakistan is now the 7th largest source of international migration globally.

To place this in a broader context, over the past 50 years, more than 14 million Pakistanis have emigrated, 57% of whom were skilled professionals, including engineers, doctors, nurses, accountants, and technicians. Ironically, these are the very skills vital to the growth of Pakistan’s export-oriented manufacturing and services sectors. The result is a steadily shrinking pool of skilled professionals at home.

While emigration – having doubled over the past two decades – has led to a sharp rise in remittances (up 240% in dollar terms), the social payoff remains conspicuously absent, as the country’s HDI indicates a regressive trend in human development.

Among the top remittance-receiving countries, Pakistan has the lowest HDI (0.54) and the highest remittance-to-GDP ratio. China and Mexico, by contrast, boast high HDI scores of 0.79 and 0.78 – with remittances forming just 0.3% and 3.6% of their GDPs respectively (Figure 1). This suggests that their economies are not reliant on remittances, nor are these inflows a primary focus of their economic strategies.

The Twin Effects of Remittances:

But why isn’t Pakistan’s $30 billion remittance inflow translating into tangible gains in human development or sustained economic growth? Because the system isn’t structured to absorb it productively. Instead, the channels through which remittances are utilized in the economy are fueling Dutch Disease – driving consumption in non-tradables and weakening the export base.

As remittances increase household incomes, they boost overall consumption, particularly of non-tradable goods like food and housing. Given the short-run inelasticity of housing supply, rising real estate prices lead to demand-pull inflation. This is especially significant because housing carries the second-highest weight in the Consumer Price Index. As prices rise in the home country relative to its trading partners, the real effective exchange rate (REER) appreciates, eroding export competitiveness. Even though the central bank allows gradual PKR depreciation, persistent domestic inflation continues to appreciate the REER, thus impacting exports.

The outcome? Despite substantial financial inflows, socio-economic growth remains stagnant or negative. This reflects the classic spending effect of remittances – where increased consumption in non-tradables, rather than productive investment, predominates.

Another channel through which remittance inflows can stall growth is the resource movement effect. As non-tradables become more profitable – particularly real estate and construction – capital, labor, and investment shift away from tradable sectors like export manufacturing. This reallocation erodes industrial capacity and contracts the export base. In effect, the tradable sector is hollowed out, unable to keep pace globally.

Together, the twin forces of the spending and resource movement effects encapsulate the symptoms of Dutch Disease.

This distortion is further compounded by rising imports – driven by REER appreciation and consumption – and declining exports due to both a stronger REER and the structural shift away from tradables.

Figure 2 captures this dynamic: over the past five decades, Pakistan’s remittance-to-GDP ratio has steadily climbed, while the export-to-GDP ratio has declined. Imports, meanwhile, have grown in tandem with remittance inflows, underscoring the structural imbalances at play.

What we’re witnessing is not prosperity, but a cycle: more migration, higher remittances, increased consumption in non-tradables, rising inflation, and a weakened export base – leading to stagnating or declining economic growth.

As El Hamma (2018) noted, remittances promote growth only where strong institutions and financial systems exist. Without them, they serve as a survival tactic. The adverse impact of remittances is further supported by Acosta et al. (2009) and Chami et al. (2005), who show a negative correlation between remittances and growth. More recently, Dr. Ahmed Jamal Pirzada cautioned against the growth of remittances in Pakistan, noting that it could lead to broader economic vulnerabilities.

Impact of Remittances on Pakistan’s Export and Growth Trajectories:

To further assess whether remittance inflows drive growth in Pakistan, we ran OLS estimations to examine the impact of remittances (as a percentage of GDP) on exports to GDP, imports to GDP, consumption to GDP, and overall GDP growth. The results are summarized in Figure 3. Our estimates suggest that a one-percentage-point increase in remittances to GDP leads to a 0.67 percentage point decline in exports to GDP, a 0.23 percentage point increase in imports to GDP, a 1.209 percentage point rise in consumption, and a 0.07 percentage point decline in GDP growth.

The negative correlation of remittances with exports and GDP growth, and the positive correlation with imports and consumption comes as no surprise in our model, especially in the case of Pakistan.

As discussed, a key explanation lies in the emergence of a dependency culture. Higher remittance incomes boost overall consumption, which also increases imports. Additionally, financial inflows trigger spending and resource movement effects toward non-tradables, weakening the tradable sector and exports. Consequently, Pakistan’s over-reliance on remittances over the past 50 years has diverted resources from productive export sectors, thereby contributing toward declining economic growth.

Theoretically, even within the GDP equation Y = C + I + G + (X − M), the effect of increased remittances on growth is detrimental – especially when the marginal increase in consumption (C) is challenged by the negative marginal impact on the trade balance (X − M). Thus, while remittances may boost consumption, their adverse effect on exports and the trade balance dampens GDP growth, assuming investment (I) and government spending (G) remain constant.

We aren’t bracing for Dutch disease; we are already living through it:

For skeptics of Dutch Disease in Pakistan, the shift began decades ago when the country’s oldest and largest export-oriented composite textile unit started reinvesting and diversifying into cement, banking, insurance, power generation, hospitality, and now dairy. While power generation qualifies as backward vertical integration within the textile sector, all other investments are in non-tradables. This is a de facto sign of Dutch Disease: businesses avoiding reinvestment in tradable or export sectors due to reduced competitiveness. Today, nearly all export-oriented firms in Pakistan are following the same path.

In conclusion, while remittances may offer a short-term fix to Pakistan’s current account issues, they come at a high cost – deepening structural problems through the spending and resource movement effects.

In seeking temporary relief, Pakistan is sacrificing long-term growth, with fewer exports and deteriorating economic performance. What started as a cultural norm has now evolved into a strategic national policy. The evidence presented here underscores why this cycle must not continue, especially when sustainable sources of dollar inflow – exports and FDI – fail to show significant progress.

The debate is not how long this model can last, but whether it should.

By Shahid Sattar | Sarah Javaid
In the aftermath of World War II, a new world order emerged through the formation of institutions like the UN, IMF, World Bank, and WTO – established to promote stability and cooperation, allowing major powers to coexist within a rules-based global system.

But in 2025, that post-war order is visibly fraying. The WTO’s dispute resolution arm is barely functioning just as new tariff wars reshape the global order.

It is in this context that American billionaire investor Raymond Dalio offers insights through his thesis on the rise and fall of empires – The Big Cycle. He argues that new world orders often emerge from the ashes of disorder, and that it is strong leadership and strategic foresight that determine whether a nation rises or sinks during these transitions.

In every war, there are winners and losers – but Dalio notes that neutral nations in great-power conflicts often outperform even the victors. During WWII, nations like Switzerland, Turkey, and Sweden avoided destruction and leveraged neutrality to grow economically and politically. They maintained trade with both sides, served as financial hubs, and positioned themselves for post-war growth.

While the U.S. and China escalate their rivalry today, nations in the middle may quietly grow stronger, richer, and more stable. India is a visible candidate – leveraging the tariff war to expand its influence, attract investment, and secure strategic deals, all without being a frontline player in the conflict.

But can Pakistan do the same?

To navigate the evolving world order as a beneficiary rather than a bystander, Pakistan must balance its foreign relations while undertaking institutional reforms at home. For this shift to occur, it first needs to avoid internal dysfunction (such as weak governance) and external collapse (like mounting debt and fiscal mismanagement).

The Big Cycle explained:

Dalio’s thesis can be summarized simply: economies rise, peak, and then decline. But first, they must rise.

As economies ascend, they are marked by strong institutions, capable leadership, technological progress, innovation, education, efficient resource allocation, and growing competitiveness. A wealth-generating class emerges, creating prosperity for both itself and the nation – enabling the country to capture a larger share of world trade as financial institutions such as banks and markets begin to thrive.

At their peak, however, economies face rising debt, internal discord, and dwindling reserves – signs of decline before emergence of a new order.

The Rise and Fall of Nations:

Today, India represents a country in the ‘rising phase’ of Dalio’s Big Cycle: strong GDP growth (6.5%), robust foreign reserves ($676bn), booming merchandise exports ($437 bn) and expanding geopolitical relevance. Vietnam, too, is capitalizing on the China+1 strategy, with export growth, FDI inflows, and a competitive manufacturing base.

Eventually, nations reach a ‘tipping point’ where sustained prosperity leads to complacency, rising debt, and reduced competitiveness. A relevant example is the US, which, despite being the world’s leading power, shows signs of institutional dysfunction, political polarization, and declining competitiveness, with average annual GDP projected to fall to 1.9% in 2025 from 2.5% last year. Similarly, China, after decades of rapid expansion, now grapples with structural challenges – tariffs, market crisis, demographic decline, and excessive state control.

Finally, a country enters the ‘declining phase,’ where strengths like innovation, productivity, and leadership erode, and structural weaknesses – high debt, unrest, and capital flight – begin to dominate. Libya, once Africa’s wealthiest nation with over $100 billion in reserves, collapsed due to its authoritarian and archaic regime, civil unrest, and weakened institutions. Similarly, Sri Lanka faced a severe economic and political crisis after years of mounting debt, fiscal mismanagement, and fragile institutions.

Pakistan’s Halfway to Prosperity:

Unlike classical cases, Pakistan’s Big Cycle was truncated, with early gains stunted before reaching their full peak. Post-independence, Pakistan showed signs of growth with industrialization, strong GDP growth, infrastructure development, and export-led growth in textiles and rice. International institutions saw potential in its economy, but this rise was short-lived, largely confined to select regions, deepening political and regional inequalities.

The decline began prematurely amid political disorder, tensions with India, and the 1971 partition. Nationalization reversed gains, and reliance on aid replaced reforms. Successive regimes prioritized short-term stability over institution-building. The lack of adherence to any constitutional arrangement further accelerated the economic decay.

Since then, Pakistan’s early growth plateaued, constrained by poor governance, regional conflict, and external dependence – manifesting in persistent twin deficits, escalating public debt, loss-making SOEs, institutional decay and stagnant productivity.

What does this decline look like today? 2025 numbers provide a glimpse.

Pakistan on the Wrong Side of the Economic Curve:

The total debt and liabilities now stand at 83% of GDP, placing Pakistan 27^th globally. Such levels are typically seen in either dynamic economies (US, UK) or collapsed ones (Sri Lanka, Sudan). To maintain its debt stability, Pakistan needs GDP growth exceeding the interest rate on its debt. However, projections suggest growth will barely reach 2% by FY25.

The SBP’s net reserves of $11.25 billion remain insufficient to cover even two months of imports, as imports are projected to reach $57.7 billion in FY25, or 15.5% of GDP. With unsustainable reserves, Pakistan has become the largest IMF beneficiary, having entered into 25 loan arrangements. Weak financial inflows strain the already fragile revenue system, further pressuring external accounts. The current account balance relies heavily on remittances – an unsustainable crutch. Though celebrated annually, remittances reflect the export of talent and intellect. There is ample evidence showing that an increase in remittances does not necessarily drive economic growth (more on this in an upcoming article). Meanwhile, exports, the basis for sustainable growth, now account for just 8.4% of GDP in 2024, down from 10.5% in 2000.

As a result, incentives for creating sustainable wealth are diminishing. Irrational tax policies, such as EFS, unjustified tax rates, and a narrow tax base, have eroded business confidence. Tax collection, revised downward by the IMF, continues to lag, eventually shifting the burden to already-taxed segments. Inflation has eased, primarily due to base effects and falling food prices, rather than an improvement in purchasing power. Household expenditures now consume 89% of the average monthly household income. Eroding purchasing power and difficult business conditions have slowed demand and business activity, contributing to economic stagnation, as reflected in negative industrial output in 8 of the last 10 quarters.

This is the decline Pakistan is facing. According to Dalio, debt doesn’t just grow – it compounds, triggering ripple effects across communities. Consumption falls, inflation rises, trust in institutions wanes, and confidence in the currency erodes. Investors pull back, and citizens lose faith in the system.

Acemoglu and Robinson sum it up in Why Nations Fail: “Nations fail because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate.” (A must-read for serious students of Pakistan’s economics.)

A Dalio-Inspired Path to Growth:

In today’s shifting global order, increasingly shaped by the U.S., Pakistan has the opportunity to emerge as a strategic gainer – if it remains neutral and focuses on the strategic steps outlined by Dalio: strong governance, innovation, education, efficient resource allocation, competitiveness, and robust markets.

To begin with, Pakistan must focus on the basics: fiscal consolidation. Despite high tax rates on individuals and businesses, the country has one of the lowest tax-to-GDP ratios. The focus must shift from high rates to a broader base and from indirect to direct taxes. In 2024, the FBR collected 51.2% of revenue from indirect taxes (ST, FED, CD) compared to 48.4% from direct taxes. With the informal economy estimated at 30–35% of GDP, formalization and better compliance are essential to increase direct tax collection. A World Bank study reveals that untaxed sectors, like agriculture, contribute only 10% of their tax revenue potential. Bringing these sectors into the net is crucial for fiscal discipline.

Another fiscal pressure point is the financial burden of SOEs. As of FY24, their aggregate losses amounted to 6% of GDP (Rs.5.7 trillion), which is higher than the FBR’s direct tax revenue (Rs.4.5 trillion). Despite privatization being on the agenda since 1991, the government continues to provide budgetary support (Rs196 billion in FY25) to keep them running. Reforming or divesting loss-making SOEs is crucial to ease fiscal burden.

Dalio also stresses diversification of investment to hedge risk. For Pakistan, this means shifting from speculative real estate to export-oriented sectors – an outcome that hinges on restoring business confidence. High taxes, rising input costs, and low confidence push capital into unproductive sectors. Ahmed Jamal Pirzada recently noted that registered companies in Pakistan are increasingly investing in real estate. A stable business climate is the first step toward reversing this trend.

Dalio’s thesis further underscores that major economic powers rise through productivity and innovation. Pakistan must boost both. From 2000 to 2020, its labor productivity grew just 1.5%, far behind India (5.7%), Bangladesh (3.9%), and China (8.5%). With only 0.55% of budget allocated for education versus 7.42% on PSDP, rebalancing is vital. Investing in skills education can enhance productivity, improve job outcomes, and reduce brain drain.

Geopolitically, Pakistan must pursue a balanced approach. While it maintains strategic ties with both China and the U.S., retaliatory tariffs could damage relations with the U.S., while offering preferential tariffs to the U.S. might strain ties with China. Therefore, it is essential to uphold strategic neutrality, safeguard sovereignty, and pursue targeted reforms for post-war recovery.

Dalio’s roadmap – centered on debt control, fiscal discipline, and neutrality – offers Pakistan a path to resilience. However, to achieve this, the country must first reboot its economic mindset and policymaking framework. By adopting institutional reforms and positioning itself as a neutral gainer in the emerging global order, Pakistan has the potential to transform today’s crisis into a long-term advantage – much like the neutral nations of the post-WWII era.

 

By Shahid Sattar | Sarah Javaid
Pakistan’s trade deficit has widened by 16% to USD 14.1 billion in the first seven months of FY 2025, compared to USD 12.2 billion during the same period last year (SPLY). On average, the monthly deficit has been increasing by 3%, currently averaging USD 2 billion per month. If this trend continues, the deficit could reach USD 26 billion by the end of the current fiscal year – or even higher at USD 27.8 billion.

While global trade, including Pakistan’s, faces uncertainty amid U.S.-triggered tariff wars, Pakistan’s policy missteps have worsened the situation, leading to a significant shift in its trade dynamics.

A key concern is the growing reliance on textile imports – a sector that has always operated at a surplus.

This drastic shift is a direct consequence of regressive taxation policies and soaring energy tariffs, which have crippled domestic production and eroded competitiveness.

If left unaddressed, this trend could have severe long-term consequences for Pakistan’s balance of trade.

Exports vs. Imports: A Worrisome Shift

During the first seven months of FY 2025, total exports grew by 10% to USD 19.5 billion, while total imports increased by 7% to approximately USD 33.3 billion. The petroleum and coal sectors led export growth, surging 85%, driven due to the zero-base effect of petroleum crude exports, followed by an 11% increase in textiles.

While these numbers may appear positive on the surface, a deeper look reveals a worrisome trend.

An analysis of import patterns indicates that the textile imports surged by 54% – the highest among all import groups. This stark reversal from same period in previous years, when textile imports declined by 38% in FY 2024 and 9% in FY 2023, highlights Pakistan’s manufacturing decline and the urgent need for corrective policy action.

What caused this shift?

During this period, cotton and cotton yarn accounted for 64% of total textile imports, up from 45% in SPLY – the highest composition ever recorded.

The primary reason is policy changes in the last budget. The Finance Act 2024 removed the zero-rating/sales tax exemption on local supplies for export manufacturing under the Export Facilitation Scheme (EFS), while imports remain duty- and tax-free. As a result, domestically sourced raw materials and intermediate inputs are now subject to an 18% sales tax, making local yarn more expensive than imported substitutes.

The consequences of this policy shift have been severe.

Domestic industry in decline, imports on the rise:

Over 100 spinning mills (~40% of production capacity) have shut down, while others are operating at below 50% capacity and are on the verge of closure.

Consequently, cotton yarn imports surged 276% in the first seven months of FY 2025 compared to SPLY. With an average monthly growth of 10%, they are projected to reach USD 737.4 million by year-end.

Even more concerning is that the surge extends beyond cotton yarn, with raw cotton imports rising sharply due to declining domestic production. During this period, imports soared to USD 1.12 billion – a 91% increase from USD 589 million in SPLY. At the current average monthly growth rate of 8%, total cotton imports are projected to reach USD 2.1 billion by year-end.

Given these trends, the combined import bill for raw cotton and cotton yarn is estimated to reach USD 2.84 billion – an 80% increase from last year’s USD 1.57 billion – posing a significant threat to Pakistan’s trade balance and the long-term viability of its textile sector, especially as protectionist policies disrupt global markets.

Pakistan’s Trade Deficit and the U.S. Tariff War: A Brewing Crisis:

Pakistan’s exports to the U.S. are dominated by textiles and apparel. During the first seven months of FY 2025, exports to the U.S. totaled USD 3.6 billion, accounting for 19% of Pakistan’s total exports. Of this, 79% (USD 2.8 billion) consists of textile and apparel products.

Among these textile exports, 94% are value-added, including ready-made garments and home textiles, while only 6% are textile intermediates. Despite this, Pakistan lacks a preferential trade agreement with the U.S.

Fair trade is a two-way street, but Pakistan’s trade with the U.S. tells a different story.

The U.S. GSP program, which expired in 2020, covered only 1.5% of Pakistan’s value-added exports to the U.S. that year and has not been renewed. Meanwhile, Pakistan’s value-added textile exports face tariffs of up to 17% in the U.S. market, while its cotton imports from the U.S. remain duty-free, creating a one-sided trade relationship.

As the second-largest importer of U.S. raw cotton – just behind China – Pakistan sourced nearly 50% of its total cotton imports from the U.S. in FY 2024.

This calls for a proactive approach to securing fair trade terms and reciprocal market access with the U.S.

The Unfair Tariff Burden:

The U.S. policy of imposing blanket tariffs globally, including on Pakistan, is unjustified. With 19% of Pakistan’s total exports and 37% of its textile exports directed to the U.S., the existing 17% tariff – combined with a potential additional 20% – would significantly erode competitiveness. Pakistan primarily caters to low- to middle-income consumers in the U.S., making its exports highly price-sensitive. This is especially concerning given that Pakistan’s energy tariffs (12–14 cents/kWh) are much higher than those of competing economies (5–9 cents/kWh), placing textile manufacturers at a severe cost disadvantage.

Beyond textiles, overall trade relations will also be impacted. Pakistan has alternative sources for cotton imports, such as Brazil – its second-largest supplier – making it possible to diversify away from U.S. cotton if trade restrictions worsen.

Wider Economic Consequences:

An erosion of export competitiveness due to U.S. tariffs and high energy costs will expose Pakistan to economic challenges far beyond a widening trade deficit.

In the short term (FY 25-26), declining exports will pressure the rupee, causing depreciation. As the rupee depreciates, the cost of essential imports – especially those with inelastic demand like energy, food, and raw materials – will rise, deepening the trade deficit and fueling imported inflation. Thus, depreciation will worsen the trade balance, a classic case of the J-curve effect – Economics 101.

In the medium term (FY 26-27), Bangladesh and India could capture Pakistan’s U.S. market share with lower energy tariffs and competitive pricing. Even if tariffs on Pakistani exports are later removed, the damage to export competitiveness could be lasting.

With that, as U.S. buyers shift to cheaper alternatives, investor confidence will weaken, reducing foreign direct investment in manufacturing and exports.

The fallout goes even further. In the long term (FY 28 & beyond), structural damage to Pakistan’s export sector is inevitable if alternative markets and policy reforms are not pursued. A persistently low export base amid trade restrictions will not only stall economic growth but also increase reliance on IMF bailouts. Worse still, a weaker rupee will make external debt repayments more expensive, leading to higher borrowing costs – all while dollar inflows remain insufficient due to declining exports.

Trade Deficit Projection: How Bad Can It Get?

Pakistan’s trade deficit is growing at 3% per month. Without additional tariffs, it could reach USD 25 billion or as high as 27.8 billion by FY25. A 20% tariff hike would worsen the deficit, triggering long-term ripple effects – an outcome Pakistan must avoid in the current global environment.

If imposed, these tariffs would immediately hit Pakistan’s USD 6 billion exports to the U.S., exacerbating the trade deficit and impacting employment, particularly in textiles.

A way forward:

To protect its exports, the government must:

1. Proactively negotiate a Preferential Trade Agreement with the U.S. that allows duty-free cotton imports from the U.S. to be used in value-added textile manufacturing bound for the U.S. market. We have seen such an arrangement under Caribbean Basin Trade Partnership Act (CBTPA), where apparel assembled in the Caribbean and Central America using U.S.-origin fabrics, yarns, and threads entered the U.S. duty-free.

While some may question the timeliness of such a deal, India is set to begin FTA negotiations with the U.S. this month despite tariff tensions. Pakistan cannot afford the economic fallout of a tariff war and must urgently pursue a trade agreement to secure long-term export growth and economic stability.

2. Restore the zero-rating/sales tax exemption on local supplies for export manufacturing under the EFS to prevent industry closures, especially as global trade becomes increasingly protectionist.
3. Reduce energy costs for textile manufacturers by bringing tariffs in line with competing economies to maintain cost competitiveness, ensuring exports remain viable even in the face of an exogenous shock.
4. Diversify export markets by expanding trade with Europe, Central Asia, and Africa, reducing overreliance on a single market and ensuring long-term market stability.

With structural challenges weighing on Pakistan’s economy, rising imports, soaring energy costs, and tariff uncertainty are threatening its export-led growth.

The path is clear and evident – secure a U.S. trade agreement, reverse harmful tax policies, and ensure competitive energy pricing. Inaction will further imperil Pakistan’s global trade position and entrench economic instability for years to come.

By Shahid Sattar | Sarah Javaid
As the EU tightens its regulations, many countries view compliance as a mere obligation, but the implications of this can have benefits far beyond maintaining trade relations. By aligning with sustainability standards, Pakistan can unlock access to global value chains, drive export-led growth, and tackle long-standing inefficiencies in the industrial value chain, including under-reporting, sales tax evasion, and the misuse of EFS.

With the EU accounting for 30% of Pakistan’s total exports, any regulatory shift from the EU will inevitably impact Pakistan’s trade. Rather than viewing this as a challenge, the policy makers need to turn this into an opportunity. While Pakistan has made progress under the GSP+ since 2014, continued access to the EU market will now depend upon compliance with their emerging regulations.

One such framework is the Digital Product Passport (DPP) under the Eco-design for Sustainable Products Regulation (ESPR), which was introduced in mid-2023 and will be enforced from 2027 onwards in sectors such as textiles, metals, and batteries. As the name suggests, the DPP represents a digital transformation in the industry’s value chain, enhancing transparency by digitally documenting product origins and production processes. It ensures due diligence in human rights and environmental standards across the value chain, preventing any product from qualifying for export without meeting transparency requirements. These requirements will be verified through a QR code displaying key production details, hence making the DPP a mandatory requirement for exporting to the EU.

But there’s more to it. Beyond ensuring due diligence, digitization through the DPP offers a real-time solution to perennial issues like under-invoicing, under-reporting, and EFS misuse. Pakistan must recognize this as a strategic advantage. Greater transparency will not only enhance access to global markets but also reinforce tax compliance.

Why Digitizing the Value Chain through DPP is Imperative?

Since 2013, Pakistan’s exports to the EU have grown significantly, with total exports increasing by 76% and textile exports by 87%. However, as buyers now prioritize transparency and traceability, the DPP is no longer just a compliance requirement – it is a binding regulatory necessity for maintaining and expanding Pakistan’s presence in the EU market.

Given this shift, it is crucial to recognize the link between the DPP and its potential role in addressing Pakistan’s structural challenges.

The FBR has long sought to curb tax evasion through initiatives like the Track and Trace System (TTS), but its limited scope has failed to eliminate illicit practices in many sectors such as tobacco and cement. True value chain traceability requires a broader approach – one that ensures due diligence while tackling tax fraud.

Pakistan’s textile sector remains highly fragmented, with SMEs constituting a significant portion of the value chain, primarily operating at the ginning and spinning stages. Many SMEs either supply large exporters or cater to the domestic market, but the lack of integration across the textile value chain leaves multiple supply channels vulnerable to tax evasion.

Following the FY 2025 budget’s removal of the sales tax exemption on local supplies for exports under the EFS, exporters increasingly turned to duty-free and sales tax-free imported yarn, which was comparatively cheaper. This shift away from sourcing domestic inputs – such as yarn from SMEs – combined with the EU’s strict traceability requirements, has made identifying the origins of imported yarn critical. Any product containing yarn that directly or indirectly originates from Xinjiang (Uighur region) faces an EU ban, jeopardizing not only exports but also brand credibility and future trade policies.

Despite these concerns, gaps in monitoring imported yarn usage persist. Many manufacturers misuse the EFS by diverting duty-free inputs to local production instead of exports, distorting the local yarn and cotton market. In parallel with the illegal use of this policy, 40% of SME spinning units have shut down due to the influx of imported inputs, further impacting local farmers who are left without buyers for their cotton.

At the farming stage, a significant number of unregistered cotton farmers in Pakistan operate within an informal market, relying heavily on uncertified seeds. This has led to poor cotton yields, increasing Pakistan’s dependence on high-value cotton imports from the US and Brazil.

Another major challenge requiring DPP’s digital intervention is the widespread tax evasion in cotton trading, commonly referred to as “Golmaal.” Approximately 2 million cotton bales are under-reported annually to evade sales tax. Estimates suggest that in FY 2024 alone, PKR 32.8 billion in sales tax was lost due to Golmaal cotton bales and banola, perpetuating tax evasion across the value chain.

Given these deep-rooted challenges, implementing the DPP is a fundamental prerequisite. A robust digital traceability system will ensure compliance, curb tax evasion, eliminate Golmaal practices, and expose corruption under the EFS.

Strategic Use of DPP and Role of FBR:

The implementation of this system requires urgent action from the FBR, starting with the creation of a centralized database shared with relevant ministries, such as the Ministry of Commerce. All players in the textile value chain must register and integrate into the system to qualify for exports to the EU. The final product will carry a QR-coded DPP, containing compliance details from farm to finished garment.

To begin with the first tier of the value chain, unregistered farmers will need to register once the DPP is implemented. Mandatory registration will enhance traceability and boost cotton productivity by curbing the use of fake seeds, documenting farmers’ produce, and streamlining underreported production.

To track Golmaal cotton bales, RFID (Radio Frequency Identification) technology can assign unique group IDs for real-time monitoring from the field to ginning, storage, and shipping, all linked to the centralized database. Similarly, QR codes on yarn, fabric, and finished products will trace raw material origins – whether imported or domestic – while also verifying compliance with sustainability standards, including water and energy usage, as well as any form of forced labor practices. Transaction records documenting manufacturers, suppliers, and buyers will ensure full value chain visibility.

With real-time digital records, the FBR can monitor value addition at each stage, significantly reducing tax evasion. Value addition currently stands at 5% in ginning, 10% in spinning, 15% in weaving/knitting, 20% in finishing, and 50% in garment manufacturing. The DPP will make this data transparent for policymakers. Linking it to POS-based tax collection will automate tax calculations, eliminating underreporting, fake invoicing, and ghost transactions, while also reducing manual intervention in tax collection.

Preventing the misuse of EFS through automation:

As discussed, the EFS has caused two major distortions in the textile value chain: the misuse of duty-free imports in local manufacturing and the challenge of tracing imported yarn origins. These issues undermine the system’s purpose and demand immediate intervention.

As of 2024, EFS supports over 1,700 exporters, who must submit an annual reconciliation statement within 30 days of the fiscal year’s end, with audits every five years. The previous five-year retention period for duty-free imports – now reduced to nine months – enabled large-scale misuse, with imports meant for exports diverted to local manufacturing to evade taxes.

Consequently, concerns arise over the origins of imported inputs, putting supply chain credibility at stake.

Ensuring export compliance with the EU now hinges on tracing imported yarn – its cotton source, production process, and adherence to sustainability standards. The DPP will strengthen oversight by digitally linking each imported input under EFS to its final exported product, preventing misuse and guaranteeing compliance.

By integrating DNA testing and digital verification, imported yarn and fabric can be tested at entry points and assigned a QR code verifying their origin. These records will be matched with final products to ensure compliance with EU regulations and prevent EFS misuse.

This system will ensure exporters use duty-free inputs within the nine-month retention period, eliminating misdeclaration and diversion. Failure to reconcile input usage with output will result in penalties or EFS revocation by the FBR.

Additionally, sales tax collection will be automated, ensuring that tax refunds under zero-rated regimes like EFS are granted only to genuine exporters.

Urgent call for making traceability mandatory in Pakistan:

To make this digital transformation happen, the government needs to urgently step up.

Past experiences demonstrate that without a legally binding system, the desired outcome will remain elusive. Therefore, the NCC must be designated as the sole regulatory body for exporters’ compliance.

A centralized database integrated with the NCC will enable it to oversee compliance with sustainability standards across the value chain and issue DPPs (in the form of QR codes) to textile exporters, allowing European buyers to access due diligence details directly from the final product.

Exporters who fail to provide the required information will not receive a DPP and, consequently, will be unable to export.

This will ensure exporters cooperate in data sharing and adhere to tax regulations. Non-compliance should result in penalties, including the revocation of EFS benefits.

Urgent attention is needed to designate the NCC as the regulatory authority and make the DPP a mandatory requirement. This will not only give Pakistan a first-mover advantage in South Asia but also enhance tax management, ensuring the country stays ahead in both sustainability and fiscal discipline.

By Shahid Sattar | Sarah Javaid
While the government celebrates its ambitious five-year Transformation Plan: The URAAN Pakistan, (2024-2029), the business community is left wondering how this will be achieved given the current economic environment.

The initiative structured around five core pillars: Exports, E-Pakistan, Environment, Energy & Infrastructure, and Equity, Ethics & Empowerment (5Es), has no implementation strategy.

All eyes are now on what new measures the government intends to introduce to liberate the industrial community from the recurring cycle of weak policy enforcement, which continues to hinder industrial growth, investment, and export expansion.

The document, which sets its sights on seeing Pakistan “among the ten largest economies of the world by 2047” alongside a target of USD 50 billion in exports over the next four years (though some pages of the document suggest USD 60 billion), is unlikely to lead to any policy shift.

Such policy frameworks have been introduced repeatedly in the past – with little or no real impact.

Meanwhile, the textile industry, the country’s leading export sector, continues to be suffocated by unrealistic tax regimes, the removal of zero-rating on local inputs for export manufacturing, exorbitant energy prices, regressive policies on captive power plants, and declining cotton production.

Team URAAN must recalibrate its approach by reversing these policies and redirecting its efforts toward addressing the real issues.

Textile exports remain the first line of defense:

Pakistan’s import dependency is precarious. Initially concentrated on petroleum products and machinery, imports have expanded to cover a broad range of food commodities, including palm oil, tea, and pulses, driving up the import bill.

Alarmingly, this trend is now extending to the textile sector. The rising import of raw cotton is particularly concerning, surging to USD 1.7 billion in FY 2023 and already reaching USD 706 million in the first four months of FY 2025, a more than 50% increase from the same period last year.

Once self-sufficient in cotton, Pakistan has now become a major net importer; in fact, the largest importer of U.S. cotton; a shift driven by successive crop failures.

With that, production costs for key crops, including cotton, have doubled since 2023, further increasing the sector’s reliance on imports.

The country’s export mix is rapidly deteriorating. Apart from IT and agricultural exports -which remain opportunistic and unreliable – textile exports are the only glimmer of hope for Pakistan’s balance of payments and therefore require urgent attention and support.

Yet, the sector is facing increasing pressure from government policies that threaten its long-term sustainability.

Export diversification will come with the right infrastructure:

Diversifying the product mix and export markets is essential for Pakistan’s export growth. However, advancing sophistication and value addition requires the country to ascend the economic complexity ladder – an area that has consistently been neglected and remains uncertain.

Pakistan ranks 85th in economic complexity globally as of 2022, unchanged since 2000. This stagnant position highlights the country’s ongoing struggle to produce technologically advanced goods and services, with negative performance across key indicators such as trade, technology, and research (Table 1).

The IT sector stands out as a relatively more complex industry with growth potential. However, unstable connectivity and frequent internet slowdowns cast a long shadow over ambitions to expand IT exports. Without guaranteed, reliable infrastructure, investment in the sector will remain elusive.

In a country always grappling with basic internet stability, the transition to the 4th and 5th Industrial Revolutions is more of a distant aspiration than an imminent possibility. Until critical infrastructure gaps are addressed, Pakistan’s vision of entering the 5th industrial revolution – as highlighted in the document – will remain unachievable.

Forced pre-mature deindustrialization:

The 5th industrial revolution remains a distant goal; instead, Pakistan’s policy landscape is driving key industries, including textiles, toward premature deindustrialization.

Historically, the textile sector benefited from a vertically integrated value chain, keeping import dependency low by relying on local raw materials such as cotton and intermediates like yarn. However, with over 25% of spinning units closed, other units operating at 50% or less capacity, and millions of jobs lost – adding to the 4.5 million already unemployed in the economy – the industry is now on the path to rapid deindustrialization, especially as the share of manufacturing in the country continues to decline (Figure 1).

This industrial decline is contributing to rising poverty, which has become a growing concern. According to a recent World Bank report, high inflation has deepened poverty in non-agriculture sectors, with the poverty rate rising to 40.5% in FY24, up from 40.2% in FY23. As industrial activity slows and employment opportunities dwindle, an additional 2.6 million Pakistanis have fallen below the poverty line, and this number is likely to increase rapidly.

Deindustrialization typically occurs as economies progress and per capita incomes rise beyond middle-income levels. However, Pakistan remains far below this threshold. The country’s premature deindustrialization, driven by the shutdown of upstream industries, risks triggering severe economic disruptions.

Considering this troubling trend, achieving export-led growth will not be possible unless critical policy reforms are undertaken.

Counterproductive economic policies come with a significant economic cost:

This premature deindustrialization is largely driven by the government’s counterproductive economic policies, particularly the heavy tax burden and frequent policy shifts that exacerbate the challenges faced by the textile industry.

The FY25 budget has placed exporters under the normal tax regime, subjecting them to a 1% advance minimum turnover tax, adjustable against a 29% final income tax, along with an additional super tax of up to 10%. Despite this, exporters are still required to pay a 1.25% advance tax on export proceeds (including a 0.25% export development surcharge). Subjecting exporters to double taxation is unjustified and discriminatory, particularly given that textile businesses operate on high volumes and low margins.

No other country taxes its export sector in such an illogical manner. Achieving USD 50 billion in exports within four years under this tax structure is nothing short of absurd.

This is further compounded by the removal of zero-rating on local supplies for export manufacturing under the EFS, leading to an 18% sales tax that undermines competitiveness by making domestically sourced raw materials more expensive than imported alternatives, which are exempt from both duties and sales tax. As a result, exporters have shifted to imported inputs, with imports of raw cotton and cotton yarn surging by 52% and 288%, respectively, in the first four months of the current fiscal year compared to the same period last year (Figure 2).

Adding to the financial strain, the sales tax refund system is plagued with delays, with refunds often taking six months or longer – or, in most of the cases, partially deferred, further intensifying the burden on exporters. As highlighted in the World Bank’s Economic Memorandum, the current tax regime in Pakistan is ‘complex and opaque,’ with refunds taking an average of 18 months to process, as compared to the 72-hour timeline stipulated under the sales tax rules.

In addition to these challenges, the government’s decision to cut gas supplies to the CPPs has dealt a further blow to the industry. How can team URAAN pursue USD 50 billion in exports while implementing policies that make it impossible to even maintain the current export levels?

Revival of fresh investment and the upgradation of industrial plants are the need of the hour:

As Milton Friedman once observed, trade deficits are not inherently harmful. The true concern arises when trade imbalances coincide with fiscal mismanagement, as is the case with Pakistan.

A few years ago, Pakistan was a cotton exporter. Today, it has transformed into a net importer, becoming the largest buyer of U.S. cotton. How much longer can Pakistan sustain this growing import dependency without seeing a corresponding boost in exports?

For Pakistan to achieve export-led growth, it is imperative to safeguard every segment of the value chain, with an emphasis on reducing import dependency wherever possible. The ongoing decline in cotton production and the closure of textile units will continue to undermine net exports. Preserving progress in value-added textile exports is critical to prevent turning the balance of trade into a zero-sum game.

In this context, reassessing Pakistan’s corporate tax structure is urgent, as the current burden stifles investment. The EFS must be reinstated to its pre-Finance Act 2024 form, including the zero-rating of local supplies used in export manufacturing. This restoration is essential to ensure fair competition for domestic producers against imported substitutes, which has become critical as businesses face closure due to the changes in EFS rules.

Cotton remains the cornerstone of Pakistan’s textile industry, and immediate action is needed to enhance domestic production. Declining cotton yields, driven by factors such as the lack of climate-resilient seeds, limited mechanization, and insufficient advisory services, are costing Pakistan an estimated USD 4 billion annually in direct losses, along with USD 15 billion in GDP, as per our estimates.

In short, the government’s 5E framework cannot drive export growth if businesses remain stifled under oppressive tax regimes and structural challenges. Pakistan must avoid premature deindustrialization and focus on safeguarding net exports by addressing these issues and adopting the proposals outlined above.

Without delay, the team URAAN needs to prioritize fixing structural issues faced by the businesses, rather than focusing on repetitive rhetoric.

By Shahid Sattar | Sarah Javaid
Traceability has become essential in the modern textile supply chain as buyers increasingly demand transparency, sustainability, and compliance with their countries’ regulations. It involves tracking a product’s journey from raw material to the final garment. Beyond meeting international standards, traceability can safeguard labor rights, promote environmentally sound and ethical practices, and enable Pakistan to effectively address persistent issues of tax evasion, Golmaal, and flying invoices.

The EU, UK, and US, key markets for Pakistan’s textile exports, are increasingly demanding traceability to ensure sustainable sourcing. Together, they accounted for a significant 50% share of Pakistan’s total export earnings during FY 2024. Compliance with their traceability standards is essential for retaining market access and sustaining Pakistan’s exports. A lack of traceability will immediately impact a whopping 75% of textile exports directed to these markets and put the remaining 25% at risk as global requirements become more stringent (Figure 1b). Over time, the other half of exports to countries outside these three key markets (Figure 1a) will face similar challenges as global standards continue to tighten.

While there are over 30 emerging legislations across the EU and the US focusing on due diligence, consumer claims, and transparency, the EU alone has enacted 16 legislations specifically addressing supply chain accountability. Among the EU directives concerning the value chain, traceability will become crucial for all suppliers under its Green Deal: Circular Economy Action Plan. A key component, the Digital Product Passport (DPP), mandates suppliers to provide exact information on products, processes, and stakeholders.

Meanwhile, the US has raised concerns about sourcing from countries linked to the Uyghur region in China over forced labor issues. Given the highly integrated regional textile supply chain and the reliance of Asian countries on inputs from China, traceability has become critical as companies face limited time to prove compliance.

Shifts in the EU and US Textile and Apparel Market

U.S. fashion companies are diversifying their sourcing beyond China, with the US Fashion Industry Association’s 2024 benchmarking study showing that buyers now rely on at least 40% of their sourcing value from other Asian countries. About 11-30% of orders come from large-scale suppliers like Vietnam, Bangladesh, and India, while 1-10% come from smaller countries (by manufacturing capacity) such as Cambodia, Indonesia, and Pakistan. This shift away from China signals that the EU and US are prioritizing traceability as a condition for market access.

The data indicates a surge in EU textile and apparel imports from all countries except China, which have plummeted by over 38% since 2020 (Figure 2a). The surge in imports from other Asian countries can be attributed to their market access through the GSP arrangement. Beneficiary countries are required to comply with the core principles of 15 fundamental conventions on human and labor rights (Standard GSP and EBA), while GSP+ beneficiaries must implement international conventions on environmental protection and good governance, in addition to the aforementioned 15 conventions. In contrast, the decline in imports from China highlights the EU’s increasing concerns regarding the Due Diligence and Corporate Sustainability directives.

Similarly, US textile and apparel imports have declined from all suppliers (Figure 2b), with the sharpest drop observed from China (-20.3%). Since the enactment of the Uyghur Forced Labor Prevention Act (UFLPA) in 2021, traceability, transparency, and sourcing strategies have become critical, as both the US and EU emphasize their commitment to improving working conditions and enforcing human rights due diligence across the value chain.

Impact of Bangladesh’s Political Challenges on its RMG sector and Opportunities for Pakistan

Escalating political tensions and unrest in Bangladesh have caused 30% of deliveries scheduled from December 2024 to March 2025 to be redirected to India, Vietnam, Sri Lanka, Indonesia, and Pakistan. The instability has deterred buyers from visiting Bangladesh, leading to factory shutdowns and job losses.

Pakistan is strategically positioned to capitalize on these shifts in the short and long term. However, to actualize this opportunity, the country must go beyond only focusing on cost competitiveness. By prioritizing traceability, Pakistan can attract buyers seeking reliable supply chains and gain a first-mover advantage in the region.

The Critical Need for Traceability in Ensuring Transparency and Combating Tax Evasion

Pakistan’s textile value chain is 80% fragmented, highlighting the need for an integrated traceability system. While initiatives like Better Cotton, Loop Trace, and Fiber Trace have been adopted by many large manufacturers to comply with international standards, their effectiveness remains limited without national implementation across the entire value chain, including SMEs. Establishing traceability as a legal requirement and designating a single regulatory authority are crucial for boosting exports and strengthening the national economy, especially considering the EU’s DPP, the USA’s diversification strategy, and the persistent menace of Golmaal in the country.

An integrated traceability system not only reinforces compliance with international standards but also strengthens tax collection. According to the FBR, around 1.5 million cotton bales remain outside the tax net each year, indicating that up to 15% of cotton output goes unrecorded to evade sales tax on both cotton bales and seeds. In FY 2024, this resulted in an estimated loss of Rs. 28.4 billion in sales tax revenue on cotton bales, with additional losses on cotton seeds. A traceability system could have increased sales tax revenue on cotton bales from Rs. 143.2 billion to Rs. 172 billion. It is crucial to understand that the sales tax loss on cotton bales accumulate at every stage of the value addition process.

Addressing tax evasion is only one part of the solution. Misuse of the EFS is another challenge that needs to be tackled. Following the removal of exemptions on local supplies under the EFS, some textile players have exploited the scheme by importing cheaper yarn and selling it domestically instead of re-exporting it. As a result, duty-free yarn imports surged by 422% during July-August FY 2025 compared to the same period last year. To address this issue, random DNA testing at ports is essential to verify whether inputs imported under the EFS are processed and re-exported as claimed. Establishing an in-house DNA testing lab is crucial to facilitate this testing and to counteract the misuse of the EFS, the perpetual challenge of Golmaal, and the prevalence of flying invoices.

While addressing tax evasion and EFS misuse is vital, the overarching challenge of enforcement persists. Instead of confronting the underlying causes of tax evasion, the FBR has initiated an unsubstantiated crackdown on textile manufacturers over alleged sales tax fraud. These actions not only damage the industry’s reputation but also erode international business confidence and negatively impact exports. Authorities should instead prioritize making traceability mandatory to promote transparency and ensure compliance with sales tax regulations.

Enhancing Cotton Quality and Market Access through Traceability

In addition to enhancing tax compliance and curbing misuse of schemes, implementing traceability systems helps combat the use of fake or uncertified cotton seeds by promoting accountability in the supply chain. Covering cotton’s origin, type, and breed has become crucial, as it improves transparency and enables farmers to secure premium prices and fair compensation for their certified produce, whether organic or regenerative. Improving Pakistan’s cotton grading system is also essential. Currently, grading relies on manual inspections, while countries like the US, Australia, and Egypt employ automated systems such as the High-Volume Instrument (HVI) to measure fiber fineness, staple length, uniformity, tensile strength, color grade, and trash content.

By integrating traceability with automated grading, Pakistan can enhance cotton quality, increase production, and expand market access. This is particularly critical given the country’s reliance on imported long-staple cotton from the US and Brazil for value-added textiles.

The Need for an Integrated Traceability System in Pakistan: A Call to Action

To effectively trace products in the value chain, Pakistan must develop a comprehensive ecosystem that integrates data using barcodes and RFID technology. Meeting U.S. market requirements for identifying the origin of cotton necessitates adopting advanced forensic methods, such as isotope and DNA testing. Additionally, to comply with the EU’s stringent monitoring of GMOs and accurately identify cotton varieties, establishing a dedicated DNA testing lab is crucial.

In 2023, APTMA partnered with the Ministry of Commerce (MoC) to establish the National Compliance Centre (NCC) to streamline international compliance and traceability requirements. However, despite being more than a year since its inauguration, the need for robust traceability remains urgent.

APTMA has proposed setting up a DNA testing lab at the National Textile University (NTU) through the Export Development Fund to improve tracking capabilities and enhance Pakistan’s global reputation. While large-scale manufacturers have implemented individual traceability systems, these efforts remain limited without integration with the Integrated Risk Management System (IRMS). Therefore, making traceability a mandatory legal requirement for all exporters and designating the NCC as the primary authority for monitoring compliance is essential. The MoC will oversee the NCC, which will issue DPP to the exporters based on compliance.

If successfully implemented, this initiative will enhance Pakistan’s capacity for transparency, compliance, and export growth, marking a significant milestone in the country’s textile industry.

Traceability as a Cornerstone for Future Exports:

With regulations like the EU’s DPP and U.S. scrutiny over forced labor, traceability has transitioned from being a value-add to a necessity. In simple terms, without traceability, exports to the West will cease. Compliance with these standards is essential for sustaining national revenue and improving Pakistan’s reputation among international stakeholders.

Implementing the proposed traceability framework can help Pakistan recover lost sales tax revenue and attract orders moving away from China and Bangladesh.  Additionally, it can help reduce production costs and enhance capacity through increased orders. This presents a timely opportunity for Pakistan to leverage shifting global sourcing trends driven by U.S. and EU policies. Therefore, it is essential for authorities to act proactively rather than waiting to react to external pressures.