Pakistan’s merchandise trade deficit continued to widen in the opening quarter of the current fiscal year, highlighting the persistent imbalance between the country’s export earnings and import expenditure. Although exports recorded encouraging growth in September 2026, the increase was insufficient to offset the faster rise in imports, leaving the country with a larger trade gap and renewed pressure to strengthen its external account.
Official data released by the Pakistan Bureau of Statistics (PBS) on Friday showed that the merchandise trade deficit increased by 6.2 per cent year-on-year to $3.56 billion in September, compared with $3.35 billion in the same month last year. The gap also widened from $3.29 billion recorded in August, indicating that the imbalance between exports and imports continued to grow on a monthly basis.
Pakistan’s exports rose by 17.6 per cent to $2.94 billion in September, up from $2.50 billion a year earlier. The improvement reflected stronger overseas shipments and offered some encouragement to policymakers seeking to increase export earnings. However, imports also registered substantial growth, rising by 11.1 per cent to $6.49 billion from $5.85 billion in September 2025.
In absolute terms, imports increased by approximately $646 million over the year, while exports added around $440 million. The difference between these increases explains why the trade deficit expanded despite the relatively strong performance of exporters.
The figures underline a continuing challenge for Pakistan’s economy: export growth alone cannot significantly narrow the trade gap if the value of imports continues to rise at a comparable or faster pace. The country needs sustained growth in foreign sales alongside measures that reduce unnecessary import dependence and strengthen domestic production.
The widening deficit becomes more concerning when viewed against the performance of the first three months of fiscal year 2026-27. During July-September, Pakistan’s merchandise trade deficit increased by 15.3 per cent to $10.8 billion, compared with $9.37 billion in the corresponding period of the previous fiscal year.
Exports during the quarter rose by 10.8 per cent to $8.42 billion, while imports climbed by 13.2 per cent to $19.2 billion. The figures show that the country continued to spend considerably more on imported goods than it earned from exports, with import growth outpacing export expansion.
The gap between the two sides of merchandise trade remains a key concern because a sustained increase in imports without a corresponding improvement in export receipts can intensify pressure on foreign exchange resources. Pakistan requires dollars to pay for imported petroleum, machinery, industrial inputs, consumer goods and other essential products, while export earnings provide an important source of those dollars.
Some increase in imports can reflect stronger economic activity, particularly when businesses purchase machinery, raw materials and intermediate goods for production. However, the implications depend on the composition of imports and whether these purchases eventually contribute to higher domestic output, productivity and export capacity.
If import growth is driven largely by goods that do not strengthen productive capacity, the resulting trade imbalance can become more difficult to manage. Conversely, imports that support industrial expansion and value-added exports can help improve the country’s external position over time.
The latest figures follow a difficult performance in merchandise trade during fiscal year 2025-26, when Pakistan’s trade deficit widened considerably. According to the reported data, the deficit increased by 21.6 per cent to $39.47 billion during the year.
Exports declined by 6 per cent to $30.13 billion, while imports rose by 7.9 per cent to $69.6 billion. The combination of falling export earnings and rising import expenditure significantly widened the gap, demonstrating that the challenge extends beyond temporary monthly fluctuations.
The deterioration also points to the need for a more competitive export sector capable of generating consistent growth across different markets and product categories. Higher export volumes and greater value addition could help Pakistan earn more foreign exchange, reduce its dependence on external financing and improve the resilience of its balance of payments.
Exporters face the broader task of improving productivity, maintaining competitive prices, meeting international quality standards and securing reliable access to energy and industrial inputs. Greater diversification of products and markets could also reduce vulnerability to changes in demand in individual countries.
At the same time, policies aimed at containing imports need to distinguish between non-essential consumption and the raw materials, technology and equipment required for productive investment. An indiscriminate reduction in imports could restrict industrial activity, while a stronger domestic supply base could gradually reduce the need for imported goods.
While merchandise trade remained under pressure, Pakistan’s services trade deficit showed a marked improvement in August 2026. The deficit narrowed by 37.2 per cent to $282.7 million, compared with $450 million in August last year, according to the PBS.
Services exports increased by 29 per cent to $873 million from $677 million a year earlier. Services imports, meanwhile, rose by 2.5 per cent to approximately $1.156 billion, compared with $1.127 billion in August 2025.
Despite the annual improvement, services exports declined by 6.9 per cent month-on-month in August, while imports fell by 4.9 per cent. This suggests that the annual performance was stronger than the immediate monthly trend, making it important to assess whether the improvement can be sustained in the coming months.
The services sector offers Pakistan opportunities to diversify its foreign exchange earnings beyond traditional merchandise exports. Information technology, software development, telecommunications and other internationally traded services can contribute to export growth without relying on the same import requirements as many manufacturing industries.
However, the sector needs consistent policy support, improved digital infrastructure, access to international payment channels, a skilled workforce and a predictable regulatory environment. Sustained growth in services exports could help offset part of the pressure created by the merchandise trade deficit.
The broader services trade figures for July-August also presented a positive trend. Pakistan’s services trade deficit fell by 25.8 per cent to $559.5 million during the first two months of fiscal year 2026-27, compared with $754.5 million in the corresponding period last year.
Services exports surged by 28.9 per cent to $1.81 billion, while services imports increased by 9.8 per cent to $2.37 billion. The faster expansion in services exports helped narrow the deficit, contrasting with the merchandise trade account, where imports continued to grow more quickly than exports.
This divergence highlights the importance of broadening Pakistan’s export base and developing sectors capable of generating foreign exchange through competitive, higher-value services. Nevertheless, the improvement in services trade remains insufficient on its own to compensate for the much larger merchandise deficit.
Pakistan’s latest trade figures present a mixed picture. The growth in merchandise exports during September and the narrowing of the services deficit are encouraging developments, but the overall external trade position remains vulnerable because import expenditure continues to exceed export earnings by a substantial margin.
The immediate challenge is to sustain export growth while ensuring that imports contribute more effectively to domestic production and economic expansion. Greater value addition, industrial competitiveness, diversification and investment in export-oriented sectors will be essential to achieving this objective.
Unless exports expand consistently enough to close the gap with imports, Pakistan will continue to face pressure on its foreign exchange resources. The first-quarter figures therefore serve as a reminder that improving monthly export performance is important, but lasting progress will depend on building a more productive economy that can earn substantially more from international trade.