The Pakistan Bureau of Statistics has reported a significant rise in exports of 8.44 percent in July 2025 as compared to June 2025 and 16.43 percent over July 2024 in dollar terms. However, the trade deficit increased by 29.43 percent in July 2025 against July 2024 and by 10.57 percent over June 2025.
The trade deficit has risen to USD 6.013 billion in July-August this year compared to USD 4.661 billion in the same period of last year. This is due to an increase in imports by 23.13 percent in July 2025 as opposed to July 2024 and 9.58 percent against June this year.
As things stand, exports have fallen due to the withdrawal of monetary and fiscal incentives by the government. In the opinion of the IMF, the government’s efforts to boost economic activity through fiscal and monetary stimulus have not translated into sustainable growth, as domestic demand has increased beyond Pakistan’s sustainable capacity, resulting in inflation.
The unfolding global economic situation shows that new difficulties may arise in the coming days affecting our external sector. The 19 percent tariffs agreed with the US, one of the few countries with which Pakistan has a trade surplus, may not work out as planned due to the Fund’s extremely harsh upfront conditions which prohibit any kind of incentives to exporters. Further, high utility charges aa compared to the regional average and heavy reliance on petroleum levy as a revenue source stand in the way of any efforts aimed at raising exports.
It may be added here that the GSP+ status extended by the European Union till December 31, 2027, through a unanimous vote by the European parliament in October 2023 has greatly helped increase our exports by over 108 percent over the past decade. But lately there are questions being raised regarding the level of our compliance with the 27 international conventions that are tied to the GSP+ scheme, particularly those relating to human and labour rights.
Export growth is inextricably linked with the efficient working of the industrial sector. But over the years, protectionist measures have weakened the competitive spirit of our industries which have not attained the level of efficiency vital for survival in the world market. On the other hand, bureaucratic control and red-tape have hindered the growth of business and industry in the country.
Exorbitant energy costs, and rising taxes and borrowing costs have reduced industrial competitiveness. In order to boost exports, we will have to first revitalise the industrial sector and attend to its essential needs. In this connection, the government is said to have formulated a new industrial policy aimed at facilitating the growth of industry. The main elements of the policy include strategic interventions like revival of non-performing units through restructuring with support from the Pakistan Banking Association and enhanced access to credit for the private sector.
The policy also envisages tax reforms and rationalisation of the tax regime and lowering energy and financing costs for business ventures. Some innovative steps have been also planned to attract foreign investment, especially from overseas Pakistanis. In this context, it is important to note here that Pakistan’s large-scale manufacturing (LSM) sector registered negative 1.21 percent growth in July-May 2025. This means that we have to pay special attention for better health of the LSM sector.
Textiles are the backbone of our exports but the news from the cotton sector is not encouraging. Cotton production is in decline, signalling disruption along the entire production and supply chain. In an economy where textiles are the main foreign exchange earners, a shortfall in cotton is not a sectoral problem, but a larger macroeconomic threat. According to the latest reports, cotton arrivals in the processing units are down by more than 17 percent compared to last year. Sindh has suffered the sharpest decline, near a quarter, while Punjab has also contracted. It is clear that if mills cannot get domestic lint in sufficient quantity and quality, they will have to import the commodity at higher cost, with a negative impact on price competitiveness.
For years we have neglected to invest sufficiently for the modernisation of the cotton economy, including development of better quality seed, rigorous certification, modern irrigation systems and technology adoption across the entire value chain. On-farm water use remains inefficient, seed markets are rife with inconsistency, and mechanisation is sloppy and half hearted. As a result, productivity has shown no improvement. Our per acre yield is much below that of our competitors.
Climate change has also negatively impacted our cotton sector. Recurrent bouts of heatwaves, heavy rain and floods have greatly damaged cotton production, accompanied by inordinate growth of viruses and insects affecting plant health. There is an urgent need to develop climate resilient, pest resistant varieties, timely husbandry, and put in place an integrated pest management system. But no timely action has yet been taken. The remedy lies in providing urgently needed funds for research institutions so that they can deliver seeds suited to local conditions, along with improved field level extension that supports integrated pest management and climate smart practices. As cotton anchors the main export industry and is a source of livelihood for the rural population, its problems call for attention at the highest level.