Pakistan is reassessing its free trade agreements (FTAs) and developing a new bankruptcy law to address ongoing economic challenges.
Key Takeaways:
i) Pakistan is reviewing its FTAs due to a growing trade imbalance and pressure on foreign exchange reserves.
ii) A new bankruptcy law is being drafted to assist businesses struggling with high interest rates and energy costs.
iii) The government aims to restructure trade agreements to boost exports and provide relief to distressed businesses.
Islamabad, Pakistan – April 13, 2025 – The Pakistani government is reconsidering its free trade agreements (FTAs) with various countries to tackle persistent economic issues, including strain on foreign exchange reserves and an increasing trade deficit. Special Assistant to the Prime Minister (SAPM) on Finance, Haroon Akhtar, stated that Pakistan’s import bill increases disproportionately whenever the economy grows, putting pressure on the country’s limited reserves.
Akhtar attributed this imbalance to the nature of past FTAs, arguing that many agreements were made without proper preparation or assessment of domestic capabilities. Consequently, Pakistan’s exports have not kept pace with rising imports, making the country heavily reliant on imports. Pakistan has several FTAs with countries like China and Sri Lanka.
Several studies suggest that while FTAs can stimulate exports, they may also lead to export diversion or have a limited impact if domestic industries are not competitive or if the agreements are poorly structured. For instance, some analyses indicate that the China-Pakistan Free Trade Agreement (PCFTA) has had the most significant positive effect on Pakistan’s exports, while others have shown mixed results.
Citing data from the Credit Information Bureau (CIB), he noted that nearly 90% of reported cases involve firms affected by high interest rates, energy costs, and heavy corporate taxation.
SAPM Akhtar also revealed that the government is preparing to introduce a bankruptcy law to provide relief to businesses struggling with the country’s macroeconomic challenges. Citing data from the Credit Information Bureau (CIB), he noted that nearly 90% of reported cases involve firms affected by high interest rates, energy costs, and heavy corporate taxation. This proposed law aims to offer distressed businesses a structured path to rehabilitation, which Akhtar emphasized is crucial for economic resilience.
Pakistan’s existing corporate insolvency framework is primarily governed by the Companies Ordinance, 1984. The new law is expected to modernize this framework, potentially drawing inspiration from international models like Chapter 11 of the US Bankruptcy Code. The goal is to facilitate the restructuring of debts and help viable businesses recover, preventing unnecessary closures and job losses.
