Pakistan’s trade deficit has widened by 16% to USD 14.1 billion in the first seven months of FY 2025, compared to USD 12.2 billion during the same period last year (SPLY). On average, the monthly deficit has been increasing by 3%, currently averaging USD 2 billion per month. If this trend continues, the deficit could reach USD 26 billion by the end of the current fiscal year - or even higher at USD 27.8 billion.

While global trade, including Pakistan’s, faces uncertainty amid US-triggered tariff wars, Pakistan’s policy missteps have worsened the situation, leading to a significant shift in its trade dynamics.

A key concern is the growing reliance on textile imports - a sector that has always operated at a surplus.

This drastic shift is a direct consequence of regressive taxation policies and soaring energy tariffs, which have crippled domestic production and eroded competitiveness.

If left unaddressed, this trend could have severe long-term consequences for Pakistan’s balance of trade.

Exports vs. imports: a worrisome shift

During the first seven months of FY 2025, total exports grew by 10% to USD 19.5 billion, while total imports increased by 7% to approximately USD 33.3 billion. The petroleum and coal sectors led export growth, surging 85%, driven due to the zero-base effect of petroleum crude exports, followed by an 11% increase in textiles.

While these numbers may appear positive on the surface, a deeper look reveals a worrisome trend.

An analysis of import patterns indicates that the textile imports surged by 54% - the highest among all import groups. This stark reversal from same period in previous years, when textile imports declined by 38% in FY 2024 and 9% in FY 2023, highlights Pakistan’s manufacturing decline and the urgent need for corrective policy action.

What caused this shift?

During this period, cotton and cotton yarn accounted for 64% of total textile imports, up from 45% in SPLY- the highest composition ever recorded.

The primary reason is policy changes in the last budget. The Finance Act 2024 removed the zero-rating/sales tax exemption on local supplies for export manufacturing under the Export Facilitation Scheme (EFS), while imports remain duty- and tax-free. As a result, domestically sourced raw........

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