Western Europe, comprising key markets such as Germany, the Netherlands, France, Italy, and Belgium, traditionally represents the largest portion of Pakistan’s exports to the EU. However, recent data reveals a significant 8.33% decrease in exports to this region for FY24, with the value falling to $3.983 billion from $4.345 billion the previous year.

While exports to Western Europe have declined, there is a notable increase in exports to Eastern Europe, suggesting some positive shifts in Pakistan’s export dynamics. A significant concern for policymakers is the decline in Pakistan’s exports to European countries, which fell by 3.12% in FY24 despite its GSP+ status, allowing duty-free entry into most European markets.

In absolute terms, Pakistan’s exports to the EU dropped to $8.240 billion in FY24 from $8.505 billion in the preceding year, according to data from the State Bank of Pakistan. The decline was primarily due to reduced demand for Pakistani goods in western, southern, and northern Europe. In October 2023, the European Parliament unanimously voted to extend the GSP+ status for another four years until 2027 for developing countries, including Pakistan, to enjoy duty-free or minimal duty on European exports.

In FY23, exports to the EU decreased by 4.41% to $8.188 billion from $8.566 billion in the previous fiscal year, indicating that exports under the scheme to European countries have remained static for the past two years. Western Europe accounts for the largest portion of Pakistan’s exports to the EU. However, exports to this region have significantly decreased by 8.33%, with the export value standing at $3.983 billion in FY24, down from $4.345 billion during the same period last year.

While exports to Western Europe declined, and growth in Southern and Northern Europe remained minimal, there is a silver lining in the form of an uptick in exports to Eastern Europe. Exports to Eastern Europe saw an increase of 12.41% to $629.762 million in FY24, up from $560.09 million in the corresponding months last year.

Exports to Southern Europe saw a modest growth of 0.40% to $2.992 billion in FY24, up from $2.980 billion in the previous year. In this region, exports to Spain grew by 4.87% to $1.333 billion in 11MFY24, compared to $1.271 billion in the preceding year.

Pakistan’s trade deficit with nine regional countries increased by 49% to $9.506 billion in FY24, up from $6.382 billion in the previous fiscal year, due to a sharp rise in imports from China and India, according to data from the State Bank of Pakistan. While exports to China grew significantly during this period, exports to other regional countries continued to decline. The total value of Pakistan’s exports to Afghanistan, China, Bangladesh, Sri Lanka, India, Iran, Nepal, Bhutan, and the Maldives rose by 20.02% to $4.334 billion in FY24, up from $3.611 billion in FY23. In contrast, imports surged by 38.49% to $13.840 billion in FY24, up from $9.993 billion in the previous year, exacerbating the trade deficit with most of these countries.

Pakistan’s current account posted a deficit of $681 million in FY2023-2024, significantly lower by 79% compared to the deficit of $3.275 billion in the previous fiscal year, revealed data released by the State Bank of Pakistan (SBP). The current account deficit amounts to 0.2% of GDP, which is the lowest in the last 13 years, according to brokerage house Arif Habib Limited (AHL). “This significant decline was driven by a 6% reduction in the trade deficit and an 11% increase in remittances,” it added.

In FY24, the country’s total export of goods and services amounted to $38.9 billion, while imports clocked in at $63.3 billion, according to SBP data. Pakistan’s current account posted a deficit of $270 million in May 2024. Worker remittances amounted to $30.25 billion, an increase of 11% compared to the previous year.

On a monthly basis, Pakistan’s current account posted a provisional deficit of $329 million in June 2024, compared to a revised deficit of $248 million in May 2024, the SBP data revealed. Low economic growth along with high inflation have helped curtail Pakistan’s current account deficit, with an increase in exports also aiding the cause. A high interest rate and some restrictions on imports have also aided the policymakers’ objective of a narrower current account deficit. During June 2024, Pakistan’s exports of goods and services stood at $3.07 billion, while imports clocked in at $5.69 billion. Meanwhile, remittances in June amounted to $3.16 billion.

The current account is a key figure for cash-strapped Pakistan, which relies heavily on imports to run its economy. A widening deficit puts pressure on the exchange rate and drains official foreign exchange reserves. Last week, Pakistan managed to secure a 37-month, $7-billion Extended Fund Facility (EFF), merely months after concluding a $3-billion Stand-By Arrangement.

Pakistan’s trade performance in FY24 reflects a mixed picture, with notable declines in exports to Western Europe and an increase in exports to Eastern Europe. The substantial rise in the trade deficit, driven by increased imports from China and India, underscores the ongoing economic challenges. Despite a significant reduction in the current account deficit, driven by lower trade deficits and higher remittances, the overall economic environment remains strained. Pakistan’s reliance on imports and its need for balanced economic policies are crucial for stabilizing its trade and current account balances. The recent securing of a $7-billion Extended Fund Facility offers some hope, but sustained efforts are needed to address structural economic issues and improve export performance.