Table of Contents
Pakistan’s $19 Billion Trade Deficit: A Deep Dive into the Growing Economic Imbalance
Pakistan’s economy is once again facing mounting pressure as the Pakistan trade deficit crossed an alarming $19 billion in the first half of the current fiscal year. Despite policy shifts aimed at liberalising trade and boosting exports, the gap between what the country sells abroad and what it imports continues to widen.
This growing imbalance is not just a number on paper. It directly affects foreign exchange reserves, the value of the rupee, inflation, investor confidence, and long-term economic stability. The latest data released by the Pakistan Bureau of Statistics (PBS) paints a troubling picture of falling exports, surging imports, and structural weaknesses that remain unresolved.
Trade Deficit Crosses $19 Billion in Six Months
According to PBS figures, Pakistan recorded a trade deficit of $19.2 billion during the July–December period of the current fiscal year. This represents an increase of nearly 35% compared to the same period last year, when the deficit stood significantly lower.
More concerning is the fact that this six-month deficit already accounts for nearly two-thirds of the full-year official target, indicating that the country is running out of room to absorb external shocks.
The widening deficit highlights a critical reality: Pakistan is importing far more than it is exporting, and the gap is growing faster than policymakers anticipated.
Exports Decline Across All Benchmarks
One of the biggest contributors to the worsening Pakistan trade deficit is the continued decline in exports. During the first half of the fiscal year, Pakistan’s exports fell to $15.2 billion, reflecting a year-on-year drop of 8.7%.
This decline is particularly worrying because exports fell across all major benchmarks:
- Month-on-month
- Year-on-year
- Half-yearly comparison
In absolute terms, exports were $1.5 billion lower than the same period last year. Even more alarming, six-month exports achieved only 42% of the annual export target, suggesting that meeting year-end goals is increasingly unlikely without a dramatic turnaround.
The trend worsened in December, when exports dropped to $2.3 billion, marking a 20.4% decline compared to December of the previous year. This was the fifth consecutive month of falling exports.
Why Are Exports Falling in Pakistan?
The exports decline in Pakistan is not caused by a single factor. Instead, it is the result of several interconnected challenges:
Overvalued Exchange Rate
Exporters argue that the rupee remains artificially strong, reducing their competitiveness in global markets. While the rupee has hovered around Rs280 per US dollar, exporters insist this level does not reflect economic realities. A stronger rupee makes Pakistani goods more expensive for foreign buyers, directly hurting export volumes and profit margins.
High Cost of Doing Business
Pakistan’s exporters face some of the highest energy tariffs, interest rates, and financing costs in the region. When combined with rising taxes and regulatory uncertainty, exporting becomes less viable—especially for small and medium enterprises.
Weak Global Demand and Structural Issues
Global economic slowdown, reduced demand in key markets, outdated production methods, and lack of value-added exports further compound the problem. Without diversification and innovation, Pakistan’s export base remains fragile.
Imports Rise Faster Than Projections
While exports are shrinking, rising imports in Pakistan are accelerating the trade gap. During the July–December period, imports surged to $34.4 billion, reflecting an 11.3% increase compared to the same period last year. In absolute terms, imports rose by $3.5 billion.
Imports have already exceeded half of the annual import target, placing sustained pressure on the external sector. December alone saw imports cross $6 billion for the first time in the current fiscal year. This marked the sixth consecutive month where imports remained above $5 billion.
Trade Liberalisation: Expectations vs Reality
The government reduced import taxes in the federal budget to promote trade liberalisation. According to World Bank projections, these reforms were expected to increase exports by 14%, while imports were projected to rise by only 7%.
However, the actual results tell a different story.
Instead of export growth, Pakistan witnessed a sharp decline, while imports expanded far beyond expectations. This mismatch highlights flaws in assumptions and underscores the importance of aligning policy reforms with domestic economic realities.
The trade liberalisation impact has so far benefited imports more than exports, intensifying pressure on foreign exchange reserves.
Pressure on Foreign Exchange Reserves
The widening Pakistan trade deficit directly impacts the country’s foreign exchange reserves. To maintain stability, the central bank has had to:
- Purchase more dollars from the local market
- Rely heavily on remittances
- Manage the rupee through gradual appreciation
While remittances have provided some relief, they are not a sustainable substitute for strong export growth.
Rupee-Dollar Parity and Managed Appreciation
The rupee dollar parity has remained close to Rs280 per dollar, with the central bank allowing gradual appreciation of one to two paisa daily.
This cautious approach aims to avoid market shocks, but exporters argue that the pace is too slow to restore competitiveness. A prolonged misalignment between currency value and economic fundamentals risks deepening the export crisis.
FBR Scrutiny Adds Pressure on Exporters
As exporters struggle with declining demand and rising costs, they are facing additional pressure from the Federal Board of Revenue (FBR).
The FBR has instructed its field formations to scrutinize at least 70 exporters, focusing on income tax returns filed after changes to the export taxation regime. The shift from a final tax regime to a minimum tax regime triggered concerns over reduced declared incomes.
This move has sparked strong reactions from the business community.
Business Community Pushback
Pakistan Retail Business Council Chairman Ziad Bashir raised serious concerns, warning that broad and open-ended scrutiny sends a negative signal to investors and exporters already under stress.
He highlighted that exporters are operating under:
- High effective tax burdens
- Elevated energy tariffs
- Rising interest rates
- Increased financing costs
At a time when export growth is critical, such actions risk undermining confidence rather than improving compliance.
The FBR later clarified that the exercise aims to ensure legal consistency and prevent errors, emphasizing that audits are part of its statutory responsibility.
Economic Consequences of a Growing Trade Deficit
The expanding Pakistan economy pressure from the trade deficit has far-reaching implications:
- Weakening of foreign exchange reserves
- Increased reliance on external financing
- Higher inflation due to currency pressures
- Reduced investor confidence
- Slower economic growth
Without structural reforms, these pressures could intensify in the second half of the fiscal year.
What Needs to Change?
To address the Pakistan trade deficit, policymakers must focus on long-term solutions rather than short-term fixes:
- Align exchange rate policy with market realities
- Reduce energy and financing costs for exporters
- Promote value-added and diversified exports
- Simplify tax and regulatory frameworks
- Ensure trade liberalisation benefits domestic production
Export growth—not import suppression—must become the central pillar of economic strategy.
Conclusion: A Warning Signal for Economic Stability
Pakistan’s $19 billion trade deficit is more than a statistical milestone—it is a warning sign. Falling exports, rising imports, policy mismatches, and regulatory pressure are converging to strain the economy.
Unless export competitiveness improves and structural reforms are implemented, the trade [trade deficit] imbalance will continue to challenge economic stability, currency strength, and growth prospects. The path forward is difficult but clear: without fixing exports, Pakistan cannot fix its trade deficit.
About the Author
Shahbaz Rana is a senior economic journalist known for his in-depth reporting on Pakistan’s economy, trade [trade deficit], taxation, and fiscal policy. He regularly covers macroeconomic trends, government policy decisions, and their impact on businesses and the public. You can read more of his work and profile here:
https://tribune.com.pk/story/2585213/trade-deficit-widens-to-19b
