EDITORIAL: Just when the government thought it had found some breathing space in the form of a surplus on the current account and a temporary cushion in foreign reserves, merchandise exports have slipped into negative territory again.
A near 9 percent drop in April follows February’s contraction and is a warning policymakers cannot afford to ignore. That it comes amid weakening global demand and new US tariffs on Pakistani textiles make matters worse.
Pakistan’s external sector is not out of the woods – not by a long shot – and the continued failure to build a durable export base or improve the quality of earnings is a serious risk for an economy running out of buffers.
The State Bank has tried to comfort markets by pointing to record remittance inflows – over USD 4 billion in March alone – and by assuring that reserves will climb to USD 14 billion by June. But, as has been recently pointed out in this space, this windfall may be less organic and more manufactured than the central bank would like to admit.
If it is true that the SBP has been mopping up funds from hundi/hawala to pump up its dollar stock, this is hardly sustainable. Using informal inflows to polish official numbers can, at best, buy time – but time for what? Structural weaknesses in both the current and financial accounts remain unaddressed. Meanwhile, the much-needed discipline on the fiscal front remains elusive.
In this context, the sharp drop in April exports – nearly 19 percent month-on-month – should be setting off alarms in Islamabad. The ministry of commerce seems oddly unperturbed, though it’s clear that US tariff hikes and soaring gas prices for captive power are set to dent future orders from buyers already shifting back to Bangladesh and Vietnam.
Policymakers have for too long banked on favourable episodes of currency depreciation and short-lived export rerouting to claim progress. But as the IMF repeatedly notes, the country’s business sector remains inefficient and heavily reliant on subsidies that distort competition and trap resources in unproductive sectors.
That criticism, one must admit, is valid. For all the support extended to exporters, Pakistan has failed to develop a high-value, knowledge-based export base. Instead of learning from past boom-bust cycles, successive administrations have repeatedly used fiscal and monetary gimmicks to delay reform. Now, with little room left to manoeuvre, the government must accept that further delay is not an option.
The problem, however, goes beyond commerce or remittances. The financial account is still showing net outflows despite the Fund’s umbrella and generous rollovers from friendly countries. Of the USD 10 billion in budgeted inflows, only about half have materialised. And the projected USD 14 billion in reserves by June is still USD 2 billion short of the expected rollovers, which are already booked. This is a house built on sand.
If the export engine falters further – as it likely will under the weight of higher energy tariffs, dipping global demand, and trade barriers – the illusion of external stability could vanish quickly. It does not help that inflation numbers too are being questioned, with PBS reportedly underestimating domestic prices by factoring in international fuel price declines that were never passed on to consumers. Without clean data and a clear-eyed understanding of where the economy actually stands, planning for recovery becomes guesswork at best.
This vulnerability comes at a time when Pakistan’s wider environment is anything but stable. Internally, militancy is on the rise again. Externally, the threat of a military confrontation with India – whether through escalation along the Line of Control or otherwise – remains real.
The economy does not exist in isolation. It needs to be strong not just to meet IMF benchmarks, but to secure the country’s political independence and national security. And that strength cannot come from artificially inflating remittance numbers or waiting for another inflow from the Gulf.
The time for complacency is long gone. If the authorities are still in denial about the seriousness of the current moment, then Pakistan risks tipping over the edge – economically as well as politically. The way forward is not in manipulating indicators but in rebuilding credibility: through structural reform, accurate data, and honest engagement with both markets and multilateral partners.
Copyright Business Recorder, 2025
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