Trade Shortfall in Pakistan Expands by 9% Year-on-Year to Reach $26.3 Billion in Fiscal Year 25
Pakistan's trade deficit showed a significant decrease in June 2025, as reported by the latest figures, with the deficit standing at $2.3 billion, down 3.4% year-on-year compared to June 2024. This decrease comes after a challenging fiscal year 2024-25, during which the trade deficit increased by 9% to $26.3 billion.
The increased trade deficit in FY 2024-25 was primarily due to several factors. Surging imports, particularly in sectors such as power, construction, mining, textiles, and transport, contributed significantly to the rise. Imports for FY 2025 reached $58.4 billion, a 6.6% increase from the previous fiscal year. The transport sector saw a notable surge of 33.3% due to strong vehicle demand and higher remittances. Textile imports increased dramatically by 63.5%, with a 230%+ jump in raw cotton imports amid local shortages.
Another factor was the contraction in the agricultural sector, which contributes nearly 24% of GDP. The sector shrank by 13.5% in major crops due to water shortages and planning inefficiencies, reducing overall GDP growth and likely affecting export capacities.
Pakistan's non-compliance with EU GSP+ conditions and higher external debt servicing costs further strained the current account and widened the trade gap. The country's non-compliance with EU GSP+ conditions, such as failure to fully implement 27 international conventions on human rights, labor, environment, and governance, threatens its preferential trade access to the EU, potentially costing the country up to $2 billion annually in exports. Increased payments of profits and dividends on foreign investments, which rose to $2.1 billion during the first eleven months of FY25, further strained the current account and widened the trade gap.
Despite these challenges, remittances remained robust, exceeding $38 billion in FY25, providing critical support to the State Bank for foreign exchange reserves and external debt servicing.
Regarding the decrease in the trade deficit in June 2025, factors include import reductions, improved fiscal management, and enhanced investor confidence amid ongoing reforms and IMF engagements. Reports indicate that import management, including stability in food imports and a drop in wheat imports (saving $1 billion), contributed to controlling the trade deficit. Improved investor confidence and macroeconomic stabilization driven by successful IMF reviews, fiscal discipline, and structural reforms have enhanced economic stability and helped reduce default risk, indirectly supporting trade balance improvements. Political stability and fiscal reforms enabled better revenue collection and fiscal discipline, tightening the fiscal deficit from 3.7% to 2.6% of GDP in nine months of FY25, which may have contributed to better control of overall external balances.
It is important to note that the balance of trade for the month of June is not provided in the given paragraph. However, it is worth mentioning that the trade balance for FY 2023-24 was a deficit of $24.1 billion. Exports for FY 2025 were $32.1 billion, a 4.7% increase from FY 2024's $30.7 billion. Imports in June 2025 were $4.86 billion, down 2% from the same period last year.
In conclusion, Pakistan's trade deficit decreased in June 2025 due to import reductions, improved fiscal management, and enhanced investor confidence amid ongoing reforms and IMF engagements. However, the increased trade deficit in FY 2024-25 was primarily due to surging imports, agricultural decline, governance challenges affecting trade preferences, and higher debt servicing costs.
The decrease in Pakistan's trade deficit in June 2025 can be attributed to the factors such as import reductions, improved fiscal management, and increased investor confidence due to ongoing reforms and IMF engagements. On the contrary, the steep increase in the trade deficit during FY 2024-25 was primarily due to various factors including growth in imports across several sectors, contraction in the agricultural sector, non-compliance with EU GSP+ conditions, and higher external debt servicing costs.
