Pakistan Bureau of Statistics (PBS) has revealed a significant rise in exports of 8.44 percent in July 2025 over June 2025 and 16.43 percent over July 2024 in dollar terms.
However, trade deficit increased by 29.43 percent in July 2025 against July 2024 and by 10.57 percent over June 2025 — a rise that is attributable to an increase in imports by 23.13 percent in July 2025 as opposed to July 2024 and 9.58 percent against June this year.
This indicates that the boom-bust cycle remains in force — a cycle premised on the need to facilitate exports and ease import restrictions to fuel growth that, as per the International Monetary Fund’s October 2024 document titled Staff report for the 2024 article IV consultation and request for an extended arrangement maintains: “Economic volatility has only increased over time, with a tight correlation between Pakistan’s boom-bust economic outcomes and its macroeconomic policies.
The repeated attempts to boost economic activity through fiscal and monetary stimulus have not translated into durable growth, as domestic demand increased beyond Pakistan’s sustainable capacity, resulting in inflation and depletion of reserves, given a strong political preference for stable exchange rates. Each subsequent bust has further harmed Pakistan’s policy making credibility and investment sentiment.”
Storm clouds are clearly visible on the horizon which, it is feared, may widen the trade deficit that, in turn, would compromise the government’s over-arching objective of ensuring that the current Fund programme is the last one.
The 19 percent tariffs agreed with the US, one of the very few countries that Pakistan invariably registered a trade surplus with in years past, may not prevail — a view strengthened by the fact that the Fund, under its ongoing extremely harsh upfront conditions, has disallowed the government from extending the usual monetary and/or fiscal incentives that were provided by previous administrations to promote exports.
In addition, higher utility charges than the regional average as well as heavy reliance on petroleum levy as a revenue source, a key input for industry, are measures that would militate against efforts aimed at raising export revenue.
The GSP+ status extended by the European Union till 31 December 2027 through a unanimous vote by the European parliament in October 2023 raised our exports by over 108 percent to the bloc over the past decade.
However, a routine monitoring mission is due and as per the EU Ambassador in Islamabad’s concerns about compliance with the 27 international conventions that are tied to the GSP+ scheme, particularly human and labour rights, would need to be assuaged. One would sincerely hope that Pakistan’s compliance with the conventions is satisfactory as exports to the EU are a major source of foreign exchange earnings for the country.
Pakistan’s foreign exchange reserves have strengthened considerably and mid-August 2025 were cited at USD 14.256 billion, which have sustained the rupee-dollar parity to under 290, though this feat has been achieved on the back of (i) debt incurred from bilaterals (USD 16 billion rollovers) and multilaterals; and (ii) State Bank of Pakistan’s purchases of around USD 8 billion from the market.
Depreciation in rupee would have made our exports cheaper and more attractive; however, other factors prevail, including the fact that mark-up payments constituted 50 percent of budgeted current expenditure and 47 percent of total budgeted expenditure for 2025-26, which highlight the need to sustain the rupee-dollar parity.
It is important to note that Pakistan’s large-scale manufacturing (LSM) sector, inclusive of the export sector, registered negative 1.21 percent growth July-May 2025, which should be a source of serious concern to the government.
While incentives are going to be opposed by the IMF as noted above with failure to show compliance likely to lead to a suspension of the programme with associated inflows from other multilaterals and bilaterals perhaps the best way forward would be to slash current expenditure, which would reduce the pressure to raise revenue from LSM that would provide a much-needed reprieve to the exporters.
