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Pakistan's Trade Deficit Widens to $18.4B, Straining External Position in FY26

Pakistan's external position has deteriorated in the first seven months of FY 2025-26, with the current account swinging to a $1.07 billion deficit from a surplus the previous year. The reversal is driven by a steep rise in imports, which surged to $36.66 billion, while goods exports declined to $18.26 billion, widening the merchandise trade gap to $18.4 billion. Although remittances climbed to $23.20 billion and services exports grew, led by IT, they were insufficient to offset the massive goods deficit. The financial account saw a net outflow, underscoring Pakistan's continued reliance on multilateral and bilateral loans to bolster its foreign exchange reserves.

Key Points: Pakistan's FY26 Trade Deficit Deepens External Fragility

  • Current account deficit of $1.07B
  • Merchandise trade gap widens to $18.4B
  • Imports surge outpacing declining exports
  • Remittances rise to $23.20B offering relief
  • Forex reserves at $17.44B depend on external loans
2 min read

Trade deficit deepens as Pakistan's external fragility resurfaces in FY26

Pakistan's current account deficit hits $1.07B as imports surge, widening the trade gap to $18.4B despite growth in remittances and IT exports.

"a sharp reversal from the USD 564 million surplus registered in the same period last year - The Express Tribune"

Karachi, February 18

Pakistan's external position has again come under strain during the first seven months of FY 2025-26, as a ballooning trade deficit offset improvements in remittances and services exports.

Citing the latest balance-of-payments data issued by the State Bank of Pakistan, the country recorded a current account deficit of USD 1.07 billion during July-January FY26. This marks a sharp reversal from the USD 564 million surplus registered in the same period last year, as reported by The Express Tribune.

According to The Express Tribune, the deterioration was primarily driven by a steep rise in imports, which outpaced export earnings. The merchandise trade gap widened to USD 18.4 billion, compared to USD 14.1 billion a year earlier.

Goods exports declined to USD 18.26 billion from USD 19.33 billion, while imports surged to USD 36.66 billion, reflecting a recovery in domestic demand and the relaxation of earlier import curbs.

Purchases of industrial raw materials, energy supplies, and capital equipment contributed to nearly 10% year-on-year growth in imports. Meanwhile, export growth lost momentum after a modest rebound in the previous fiscal year.

The broader goods and services deficit expanded to USD 20.47 billion, up from USD 15.88 billion last year. Although services exports rose to USD 5.66 billion, supported largely by IT and telecommunications, they failed to compensate for the widening goods deficit.

IT and IT-enabled services remained the dominant segment within services exports, generating USD 2.61 billion. Remittances continued to offer relief.

Inflows from overseas Pakistanis climbed to USD 23.20 billion, lifting the secondary income surplus to USD 24.73 billion. However, the primary income deficit, which includes external debt servicing and profit repatriation, stood at USD 5.33 billion, as cited by The Express Tribune.

On the financing side, the financial account posted a net outflow of USD 1.35 billion. Foreign direct investment declined to USD 982 million, while portfolio flows remained negative, as repayments exceeded fresh inflows.

Despite mounting external pressures, foreign exchange reserves rose to USD 17.44 billion by the end of January FY26, supported largely by multilateral and bilateral loan disbursements, highlighting Pakistan's continued dependence on external financing to stabilise its fragile economy, as reported by The Express Tribune.

- ANI

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Reader Comments

S
Sarah B
The remittances figure is staggering—over $23 billion from overseas workers. It shows how much a nation can rely on its diaspora. India also benefits hugely from remittances, but we must ensure our own industrial and export base is robust enough to not be in a similar fragile position.
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Ananya R
It's sad to see the common people suffer due to these macroeconomic issues. High imports might mean more goods available, but it leads to debt and currency pressure. Hope stability returns for the sake of the ordinary citizen there. 🙏
V
Vikram M
The IT services export number ($2.61B) is actually not bad. But it's clearly not enough to cover the massive goods deficit. This highlights the importance of diversifying exports beyond just IT. Manufacturing and agriculture exports need a boost, something we in India are also working on.
K
Karthik V
Reserves are up but only because of loans, not genuine earnings. That's a shaky foundation. Economic policy needs vision and discipline, not just crisis management. A respectful criticism: sometimes our own media celebrates short-term reserve boosts without looking at the underlying fragility.
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Priya S
The data shows a recovery in domestic demand there, which is good for people's daily lives, but if it's fueled by unsustainable imports, it will backfire. Balance is key. Hope their policymakers find a way out. Stability in the region is good for everyone.

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