Pakistan Economy Under Pressure as Trade Deficit Hits $25 Billion Mark
Pakistan’s trade deficit has widened sharply by 25 percent during the first eight months of fiscal year 2025-26 (FY26), raising concerns about the country’s external account and foreign exchange reserves.
According to official data released by the Pakistan Bureau of Statistics (PBS) and compiled by Arif Habib Limited, Pakistan’s trade deficit reached $25.042 billion during July–February FY26.
The increase comes as exports declined significantly while imports remained relatively high despite showing a slight monthly slowdown.
This detailed analysis explains:
- Pakistan trade deficit FY26 update
- Export and import performance July–February
- February 2026 trade data breakdown
- Impact on foreign exchange reserves
- Why exports are falling
- What this means for Pakistan’s economy
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Pakistan Trade Deficit Reaches $25 Billion in 8 Months
During July–February FY26:
- Exports totaled $20.462 billion
- Imports reached $45.504 billion
- Trade deficit widened to $25.042 billion
This represents a 25% increase compared to the same period last year.
In 8MFY25:
- Exports were $22.073 billion
- Imports were $42.110 billion
This shows exports declined while imports increased, widening the gap.
Why Pakistan’s Trade Deficit is Rising
A trade deficit occurs when a country imports more goods than it exports.
Pakistan is facing pressure because:
- Exports fell by 7.3% year-on-year
- Imports rose by 8.1%
- Global demand remains weak
- Energy import bills remain high
- Currency pressures continue
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Export Performance: Sharp Contraction in FY26
Exports during July–February stood at $20.462 billion, down from $22.073 billion last year.
This marks a 7.3% decline.
February 2026 Export Breakdown
In February 2026:
- Exports totaled $2.272 billion
- Down 8.8% year-on-year
- Fell 25.6% from January 2026 ($3.055 billion)
The month-on-month drop shows a sharp slowdown in external shipments.
Industries affected may include:
- Textile exports
- Rice exports
- IT services
- Leather and sports goods
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Import Performance: Still Elevated
Although imports showed slight monthly easing, they remain high overall.
July–February Imports
- Imports totaled $45.504 billion
- Increased 8.1% from $42.110 billion last year
February 2026 Imports
- Imports were $5.253 billion
- Down 1.6% year-on-year
- Fell 9.5% from January 2026
This suggests some demand moderation but not enough to reduce the trade gap significantly.
External Account Under Pressure
The widening trade deficit puts pressure on:
- Current account balance
- Foreign exchange reserves
- Pakistani rupee
- Inflation levels
When imports exceed exports significantly, the country needs foreign currency to pay for imports.
This increases reliance on:
- IMF support
- Foreign loans
- Remittances
- Bilateral assistance
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Monthly Trade Deficit: February 2026 Snapshot
In February 2026:
- Trade deficit: $2.981 billion
- Exports: $2.272 billion
- Imports: $5.253 billion
Although imports declined compared to January, exports fell more sharply.
This imbalance continues to widen the overall deficit.
Comparison with Previous Year
| Indicator | 8MFY25 | 8MFY26 | Change |
|---|---|---|---|
| Exports | $22.073B | $20.462B | -7.3% |
| Imports | $42.110B | $45.504B | +8.1% |
| Trade Deficit | ~$20B | $25.042B | +25% |
This comparison shows that declining exports combined with rising imports are driving the deficit higher.
Key Factors Behind Export Decline
Several factors may be contributing to falling exports:
- Global economic slowdown
- Lower textile demand in Western markets
- Energy supply challenges
- Production costs increase
- Currency volatility
Export competitiveness depends heavily on stable policy and energy supply.
Why Imports Remain High
Pakistan imports:
- Petroleum products
- LNG
- Machinery
- Chemicals
- Food items
Even if monthly demand slows, essential imports remain necessary.
Energy imports in particular significantly impact the import bill.
Impact on Foreign Exchange Reserves
A rising trade deficit means:
- More dollars leaving the country
- Pressure on State Bank reserves
- Increased borrowing needs
If reserves decline:
- Rupee weakens
- Inflation rises
- Debt servicing becomes expensive
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Inflation and Cost of Living Impact
A weaker currency makes imports more expensive.
This leads to:
- Higher petrol prices
- Increased electricity tariffs
- Expensive food items
- Rising transportation costs
Trade imbalance directly affects consumers.
Role of Remittances
Overseas Pakistani remittances help offset trade deficit.
However, remittances alone cannot fully cover a widening gap.
Exports must grow sustainably to improve balance.
What Government Can Do
To reduce trade deficit, policymakers may:
- Promote export incentives
- Diversify export markets
- Encourage local manufacturing
- Control non-essential imports
- Support IT and services exports
Economic reforms and industrial expansion are key.
Long-Term Economic Implications
If trade deficit continues to widen:
- Current account deficit expands
- IMF negotiations become critical
- Foreign debt increases
- Economic growth slows
Structural reforms are necessary to stabilize external accounts.
Market Reaction
Business and financial markets are watching closely.
Concerns include:
- Investor confidence
- Stock market performance
- Exchange rate volatility
Persistent external imbalance can weaken economic outlook.
Final Analysis
Pakistan’s trade deficit widening by 25% in just eight months signals growing external pressure. With exports falling sharply and imports staying elevated, the imbalance threatens foreign exchange stability and economic recovery.
Unless export performance improves and structural reforms strengthen industrial productivity, the external account may remain under stress in the coming months.
The February 2026 data shows that while imports are moderating, export contraction remains the biggest concern for policymakers.
