Farooq Awan

Pakistan’s latest trade figures point to mounting challenges for the country’s external sector, as weakening exports and rising imports combine to widen the trade deficit and intensify pressure on the overall balance of trade. The latest data underline a deteriorating trend that has persisted through much of the current fiscal year, raising concerns about the sustainability of external stability.

Data released by the Pakistan Textile Exporters Association (PTEA), based on official trade statistics, show that Pakistan’s exports declined by 20.41 percent year-on-year to $2.31 billion in December 2025, compared to $2.91 billion in the same month last year. The sharp fall in export earnings marks the fifth consecutive monthly decline, underscoring a prolonged period of weakness in external demand and export performance.

While exports continued to contract, imports moved in the opposite direction. In December, imports rose by 2 percent year-on-year to $6.02 billion, up from $5.90 billion in the corresponding month of last year. The divergence between declining exports and rising imports widened the monthly trade deficit by 23.79 percent to $3.7 billion, compared to $2.99 billion a year earlier. This widening gap reflects growing imbalances within the external sector.

The broader half-year data reinforce the challenges highlighted by the December figures. During the July–December period of the current fiscal year, exports fell by 8.70 percent to $15.18 billion, down from $16.63 billion recorded in the same period last year. In contrast, imports surged by 11.28 percent to $34.38 billion, compared to $30.90 billion in the corresponding period of the previous year. As a result, the trade deficit for the first half of the fiscal year swelled by 34.57 percent to $19.2 billion.

The persistent expansion of the trade deficit has significant implications for Pakistan’s external sector management. A widening gap between exports and imports increases reliance on external financing sources to bridge the deficit, placing added pressure on foreign exchange reserves. At the same time, weaker export inflows limit the economy’s ability to generate foreign currency earnings needed to meet external obligations and support currency stability.

Export trends over recent months suggest that the slowdown is not episodic. Export earnings declined by 12.49 percent in August, followed by further contractions of 3.88 percent in September, 4.46 percent in October, and a sharper 14.54 percent drop in November, before falling again in December. This sustained downward trajectory highlights structural challenges affecting export competitiveness and market access.

The external sector imbalance is further complicated by the pace of import growth, which has outstripped projections in recent months. Rising imports, driven in part by trade liberalisation and domestic demand for inputs and consumer goods, have added to the strain on the trade account. Without a corresponding recovery in exports, these dynamics will continue to exert pressure on the balance of payments.

Taken together, the data point to a challenging external sector environment marked by contracting exports, expanding imports, and a widening trade deficit. The latest figures highlight that restoring balance to the external sector will require a sustained turnaround in export performance. Until export earnings stabilise and begin to recover, pressures on the trade account are likely to persist, keeping the external sector under strain during the remainder of the fiscal year.

Credit: INP-WealthPk