Pakistan’s trade deficit expanded by 25 percent during the first eight months of FY26, reaching $25.042 billion as exports declined sharply while imports remained elevated. The widening gap between external receipts and payments underscores mounting pressure on the country’s external account.
The latest trade figures show that despite some moderation in monthly import demand, overall import volumes continue to significantly outpace export earnings, contributing to a growing imbalance in the trade account.
Exports Post Notable Decline
During the July–February period of FY26, Pakistan’s total exports stood at $20.462 billion. This marks a 7.3 percent decline compared to $22.073 billion recorded in the same period of the previous fiscal year.
The drop in exports reflects weakening external demand and possible competitiveness challenges in key sectors. The decline is particularly concerning given the need to boost foreign exchange inflows at a time when the country is managing tight reserve levels and external financing requirements.
A sustained slowdown in exports limits the country’s ability to offset rising imports and stabilize the trade balance.
Imports Continue to Outpace Exports
While exports contracted, imports rose during the eight-month period. Total imports reached $45.504 billion, up 8.1 percent from $42.110 billion in the corresponding period of FY25.
The rise in imports, despite ongoing efforts to contain non-essential purchases, highlights continued demand for raw materials, machinery, fuel, and other essential goods. Although imports are critical for supporting domestic production and economic activity, higher import bills without corresponding export growth deepen the trade imbalance.
The persistent gap between imports and exports has kept the trade deficit on an upward trajectory.
February 2026: Monthly Trade Performance
On a monthly basis, Pakistan recorded a trade deficit of $2.981 billion in February 2026. Exports during the month stood at $2.272 billion.
February exports declined 8.8 percent compared to the same month last year. On a month-on-month basis, the drop was even sharper, with exports plunging 25.6 percent from January’s $3.055 billion. The steep monthly contraction suggests a significant slowdown in external shipments, possibly linked to seasonal factors or reduced global demand.
Imports in February were recorded at $5.253 billion. On a year-on-year basis, imports fell slightly by 1.6 percent from $5.339 billion in February 2025. Compared to January 2026, imports declined by 9.5 percent from $5.805 billion, indicating some easing in monthly demand.
While the monthly reduction in imports may provide temporary relief, the overall trade picture remains challenging due to the persistent export weakness.
Pressure on External Account
Trend data indicate that although imports have moderated from recent peaks, they continue to exceed exports by a wide margin. This structural imbalance keeps sustained pressure on Pakistan’s external account.
A widening trade deficit directly impacts foreign exchange reserves, as more dollars are required to pay for imported goods than are earned through exports. If the trend continues, it could increase reliance on external borrowing or financial assistance to bridge the gap.
Managing the trade deficit remains a critical policy challenge. Boosting export competitiveness, diversifying export markets, and encouraging value-added production are essential for improving external stability.
Outlook and Economic Implications
The 25 percent expansion in the trade deficit during the first eight months of FY26 highlights the urgency of corrective measures. While some moderation in imports suggests demand adjustment, the sharp contraction in exports is a key concern.
For sustainable improvement, policymakers will need to focus on export-led growth strategies, industrial support measures, and policies aimed at reducing the structural import dependency of the economy.
Unless export performance rebounds in the coming months, the trade deficit could remain elevated, continuing to strain reserves and complicate broader macroeconomic management.
Read More
Pakistan’s Auto Industry Loses Rs. 60 Billion, 40,000 Jobs Due to Used Car Imports: CCP
