Pakistan’s trade deficit is on the rise again. It soared almost 33% year-on-year (YoY) to $9.37 billion in the first quarter of FY26. It is stemming from a notable surge in imports and drop in exports, showing an early sign of overheating the economy.
The gap between import and export figures would further widen more sharply if and when the government opts to account in the IMF-found undisclosed imports worth $11 billion in the past two years.
Pakistan’s economy starts overheating once it touches or crosses a growth rate of around 4% a year under the current economic setup of low exports, as imports swell when the economy enters into a growth phase.
Besides, increasing food prices have pushed inflation reading up as well, partly in the wake of the ongoing floods that have devastated the agriculture economy and partially affected the remaining two major sectors of the macroeconomic including industrial and services sectors.
The inflation reading would stand threating the economy as soon as it goes up beyond 7% on monthly or annual basis and stays there for a longer period. The central bank has projected it to hike into the red zone, but for a temporary period.
Inflation in Pakistan clocks in at 5.6% in September 2025
The trade gap and food inflation may grow stronger, produce tough headwinds, and turn into a storm to ruin the stability achieved in the domestic economy over the past two years if policymakers continue to fail boosting exports that in-fact have fallen in the first quarter of FY26, and let the imports increase.
Pakistan has faced the crisis of low exports for the past two decades. No government has yet succeeded in formulating a plan and strategy to come out of the phenomenon. Pakistan Muslim League - Nawaz (PML-N) former finance minister Miftah Ismail admitted in his official capacity at a lecture at the Institute of Business Administration (IBA) in September 2022 they had no plans to increase exports and asked the university students to conduct study and come up with a solid plan for. The former minister said he would also ask the Lahore University of Management Sciences (LUMS) students to do the same.
A jump in exports can only help the nation to get rid of the International Monetary Fund (IMF) loans and the lender’s harsh recommendations, and move on achieving a sustainable economic growth.
Pakistan’s economy starts overheating once it touches or crosses a growth rate of around 4% a year under the current economic setup of low exports, as imports swell when the economy enters into a growth phase. Doing so is a must to create job opportunities to accommodate majority young comers into the job market. A lower growth rate, on the other hand, results into rending people jobless and alleviate poverty level. The low and high growth rate is a situation for the nation like it is stuck between a rock and a hard place.
The recurrent and ballooning trade and current account deficits had agreed Pakistan to acquire 24 loan programmes from the IMF in the past 76 years.
Credit for stabilising the economy at present goes to workers’ remittances that absorbed the entire trade deficit in recent times. However, the deficit is now swelling again.
Pakistan receives $3.2bn in remittances in September 2025
The central bank has said it is cognizant of the situation and it will not repeat the past mistakes including letting imports surging rapidly.
Moreover, the stability in the economy has been achieved through controlling imports, as it was the external economy that had weakened in the wake of a sharp dip in foreign exchange reserves in early 2023 and intercepted growth in the import-led domestic economy.
However, the government had to withdraw its controls and let the imports liberalise under the IMF recommendations and World Trade Organisation’s (WTO) rules.
Liberalising imports of raw material was also an essential to push the economy into a growth phase from the current stability one. But doing so without a strategy to revive exports would be no turnaround in the economy. Rather, the country would return to the bleak phase of the history when colossal imports and lull exports resulted into historical high trade and current account deficits and inflation hit four decade high in May 2023 – overheating the economy then and now again.
The writer is a Reporter at Business Recorder (Digital)