Moaaz Manzoor

Pakistan’s widening trade deficit, despite export growth, is heightening external stability concerns as imports outpace gains, with experts warning that without structural reforms, the imbalance could exacerbate external financing risks, reports WealthPK.

Experts cautioned that the worsening trade imbalance could strain the foreign exchange reserves and increase dependence on external financing, especially as debt repayments would accelerate in the coming years. According to the official data, the country’s exports grew by 8.17% to $22.022 billion in the first eight months of the current fiscal year, but imports rose by 7.40% to $37.802 billion, widening the trade deficit by 6.33% to $15.780 billion.

The situation worsened in February 2025, with the deficit surging by 33.43% year-on-year due to weaker exports and a sharp rise in imports. Speaking with WealthPK, Dr. Zafar Mahmood, Principal and Dean of the School of Social Sciences and Humanities at NUST, stressed that persistent deficit resulted from the long-standing structural weaknesses.

He criticized the lack of substantive reforms, arguing that without addressing these fundamental issues, Pakistan’s economy will remain trapped in cycles of debt and instability.  “The government’s inaction on critical structural reforms is concerning. While short-term improvements in external accounts may offer a temporary relief, sustainable economic stability remains elusive,” he said.

He added that limited fiscal space further restricted the country’s ability to implement growth-driven policies, making economic recovery fragile. Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, pointed to a mixed external sector performance, noting that while exports grew by 7% year-on-year to $23.9 billion in July-January period and remittances surged by 32% to $20.8 billion, import growth remained a major concern.

“The rise in imports — up 11% year-on-year to $39.9 billion — has once again tilted the balance, exacerbating external pressures,” Mobeen explained. He acknowledged that the foreign exchange reserves had grown by nearly 40% YoY to $11.2 billion, but warned that the external debt obligations of approximately $100 billion due between 2025 and 2029 presented a formidable challenge.

“The import cover remains fragile, and with remittances potentially slowing due to the declining oil prices in Gulf economies, Pakistan’s ability to manage its external payments remains uncertain,” he added.He projected an annual liquidity gap averaging 42.7% of total foreign exchange earnings over the next five years, underscoring sustained external financing risks.

While Pakistan’s exports and remittances have shown resilience, the widening trade deficit and mounting debt repayments indicate that the external vulnerabilities will persist without decisive structural reforms. Experts argued that short-term improvements in external accounts would offer little long-term relief without a strategic policy shift.

Credit: INP-WealthPk