Pakistan has opened the new fiscal year with a negative trade balance: imports racing ahead of exports and the trade deficit climbing to levels that should alarm policymakers. Figures released by the Pakistan Bureau of Statistics show the trade deficit widened by more than 25 percent year-on-year in July, the first month of FY2026-27, to just under $4 billion.
Imports rose by 18 percent to $6.9 billion, while exports grew a comparatively modest 9.5 percent to $2.9 billion. The story is not one of collapsing exports — they did grow — but of an economy whose appetite for foreign goods still outpaces, by a wide margin, its ability to sell to the world.
The July numbers are not an isolated shock; they reflect a trend visible across the last several fiscal years. Pakistan’s full-year trade deficit stood at roughly $27.5 billion in FY2022-23, a year dominated by import compression and an IMF-mandated squeeze on the current account. It narrowed to about $24.1 billion in FY2023-24 as import curbs held and exports recovered. That improvement proved short-lived: the deficit widened again to roughly $26.3 billion in FY2024-25, and then jumped sharply to nearly $39.5 billion in FY2025-26 — a swing of more than 21 percent in a single year, as exports actually declined even as imports surged. The July 2026 data suggests the new fiscal year is picking up where the last one left off.
Conventional trade theory holds that a depreciating currency should make a country’s exports cheaper and more competitive abroad. Pakistan’s experience over the past decade complicates that assumption. Despite substantial rupee depreciation, the country has not seen the structural export boom that textbook models would predict. The reason lies less in the exchange rate than in everything surrounding it: costly energy inputs, weak productivity, poor logistics infrastructure, an unpredictable tax regime and regulatory uncertainty. A weaker currency lowers the price of what Pakistan sells abroad, but it also raises the cost of the imported machinery, raw materials and components that much of Pakistani industry depends on — eroding much of the intended competitive gain.
The more fundamental problem is institutional rather than monetary. Pakistan has rarely sustained an export strategy long enough for it to bear fruit. Rather than systematically studying where global demand is heading and building deliberate advantages in new products and markets, the country has largely continued exporting what its established industries — textiles chief among them — have always produced. Comparative advantage, as successful exporting nations have shown, is something built through sustained investment in skills, technology, infrastructure and market intelligence, not simply inherited.
Pakistan has had moments that hinted at what focused effort could achieve — the export push of the Musharraf-era years is often cited as a period when trade facilitation and commercial diplomacy received sustained attention. But successive governments have failed to institutionalise that approach, leaving export policy as a rotating set of incentive packages and targets rather than a durable national project.
With exports unable to close the gap, Pakistan has leaned ever more heavily on external financing and remittance inflows to keep its balance of payments afloat. Worker remittances have repeatedly absorbed shocks that would otherwise have forced a harder reckoning, while loans and deposits from friendly states and multilateral lenders have plugged the remaining shortfall. Finance Minister Muhammad Aurangzeb’s recent efforts in Washington to secure a proposed $10 billion US exchange-stabilisation facility fit this long-running pattern. Such support buys some time and should not be refused when offered — but it is a palliative, not a solution. Every additional dollar borrowed to bridge the trade gap is a reminder that the underlying problem, an economy that cannot yet pay its own way, remains unresolved.
Other developing economies facing similar starting points chose a different path. Vietnam transformed itself from a minor exporter into a manufacturing powerhouse within roughly two decades by aggressively courting foreign direct investment, signing a dense network of free trade agreements, and investing heavily in ports, power and industrial zones to make itself an attractive link in global supply chains. Bangladesh, despite weaker infrastructure than Pakistan’s, built a garment-export machine by offering predictable policy, generous but time-bound incentives, and continuous upgrading of its ready-made garment sector, eventually overtaking Pakistan in textile exports despite a smaller economy. South Korea’s earlier export-led growth relied on channelling credit and support toward firms that could compete internationally, with targets enforced rather than merely announced. Each of these examples relied on continuity: institutions and policies that survived changes of government.
For Pakistan, the elements of a credible reform agenda are not mysterious, even if they have proven politically difficult: lowering energy costs for exporters, simplifying and stabilising tax treatment of export-oriented industry, investing in trade logistics and port efficiency, diversifying beyond textiles into higher-value sectors such as IT services and engineering goods, and building institutional capacity to track and act on shifts in global demand. It’s time to set up a special task force which should study how Vietnam and Singapore turned around their export sectors and prepare a new export development plan for the country to be implemented in the next five years.