Borrowing the difference

EDITORIAL: A trade deficit approaching $4 billion in the very first month of the new fiscal year is precisely the sort of warning Pakistan’s external account does not need.

According to the Pakistan Bureau of Statistics (PBS), the deficit widened 25.17 percent year-on-year in July to $3.948 billion as imports jumped 18 percent to $6.887 billion.

Exports did rise, by 9.54 percent to $2.939 billion, but nowhere near fast enough to keep pace with imports. The imbalance, rather than any fall in exports during the month, is the real source of concern.

That distinction matters because Pakistan remains chronically dependent on foreign exchange generated outside its productive economy. Remittances have repeatedly provided the cushion that prevents external imbalances from becoming outright crises, while borrowed dollars and deposits from friendly countries have filled the remaining gaps.

Such support can stabilise the balance of payments, but it cannot substitute indefinitely for an export sector capable of paying the country’s way in the world. The latest trade numbers show once again how far Pakistan remains from that objective.

Perhaps the most damning feature of this failure is that even the rupee’s historic depreciation over the past decade has failed to produce the export transformation that textbook economics might have suggested. A cheaper currency should, other things being equal, make exports more competitive internationally.

Pakistan discovered instead that exchange-rate adjustment cannot compensate for expensive energy, weak productivity, poor logistics, inconsistent taxation, regulatory uncertainty and the absence of a coherent export strategy. Depreciation raised the cost of imported inputs while structural weaknesses continued suppressing competitiveness.

The deeper problem is that Pakistan has never developed an export policy commensurate with the seriousness of its foreign-exchange constraint.

The country largely continues selling abroad what established industries already produce rather than systematically identifying global demand, studying emerging supply chains and developing products in which competitive advantage can be created.

Comparative advantage is not always something countries simply inherit. Successful exporting economies invest in skills, technology, infrastructure, and market intelligence to manufacture it.

Pakistan has attempted pieces of that exercise at different times, but rarely with continuity. The export push during the Musharraf period demonstrated what sustained government attention to markets, trade facilitation and commercial diplomacy could achieve, yet subsequent governments failed to build a durable institutional framework around it.

Export policy became another collection of targets and incentive packages, regularly revised but rarely anchored in a serious long-term strategy for moving into new products and markets. The result is an economy that still depends overwhelmingly on a narrow export base while repeatedly rediscovering its balance-of-payments problem.

The contrast with the government’s continuing search for external financing is uncomfortable. Finance Minister Muhammad Aurangzeb recently used his Washington visit to seek a proposed $10 billion US exchange-stabilisation facility, alongside wider financing and investment support.

Such arrangements may provide valuable breathing space, particularly during periods of geopolitical stress, and refusing available financing would serve no purpose. But every fresh request for an external backstop should reinforce the urgency of creating an economy that eventually requires fewer of them. Liquidity buys time.

Export competitiveness determines what the country does with that time.

The July figures therefore deserve to be treated as an early warning rather than another monthly statistical fluctuation. Imports will naturally increase when economic activity strengthens, and suppressing productive imports merely to improve the trade balance would be self-defeating.

The answer lies in expanding exports quickly enough to finance a growing economy without repeatedly exhausting foreign-exchange reserves. That requires a genuine export strategy built around global demand, productivity, diversification and competitiveness, with measurable targets and institutional accountability.

Pakistan has become remarkably proficient at arranging the dollars required to survive the next external financing squeeze. It now needs to become equally proficient at earning them.

Copyright Business Recorder, 2026