The tariff reforms are designed to hopefully boost our industrial competitiveness and allow manufacturers to become part of global supply chains by giving them greater access to raw materials and semi-finished goods. The reforms are expected to boost exports by $5 billion once the adjustments are phased in, starting with the next budget.
The need to boost domestic commodity production for exports as well as local needs is imperative to manage a stable balance of payments.
According to the latest International Monetary Fund report, nearly $17bn were available in the shape of new loans and rollovers to meet Pakistan’s gross external financing needs of $19.2bn; for the $2.4bn gap, the country was securing commitments from foreign creditors. The $19.2bn financing includes $1.5bn for the current account deficit and the remaining for repaying the foreign debt, says the report.
However, the report observes that some of the traditional funding sources are either drying up or will not be available. The World Bank had stopped Pakistan’s budget financing, according to The Express Tribune, a few months ago. And there are uncertain risks from US tariff policies.
The country’s economy is expected to grow by 2.68pc in the current fiscal year — a revision from the earlier projected 3.6pc
Imports of goods during the nine-month period rose modestly to $43.39bn from $39.06bn a year earlier — an increase of just $4.33bn. Exports of goods also increased, albeit at a slower pace of $1.77bn, reaching $24.66bn in the same period. Thus, the trade deficit in goods and services widened to $21.05bn in July-March compared to $18.36bn in the same period last year — an increase of $2.7bn.
The food imports bill surged to nearly $7bn during the first 10 months of the current fiscal year, rising from $6.82bn in the same period of last year. The import was primarily driven by higher imports of edible oil, tea and sugar to meet domestic demand. According to the latest official data, agricultural production grew by a mere 0.56 per cent in 9MFY25.
Pakistan’s trade deficit widened to a record $3.5bn dragging the current account surplus down to just $12m in April from a peak of $1.2bn in March
The microeconomic stability achieved so far is quite laudable, but the external sector performance in the single month of April raises questions about its durability. The exports dropped to $2.18 million, a decline of 17.66pc from March and a 7.36pc decrease compared to $2.35m in April 2024. On the other hand, imports for the month this year reached $5.61m, a 16.22pc rise from the previous month and a 15.79pc increase from the same period a year ago.
In April of this year, Pakistan also saw an inflow of $3.2bn in workers’ remittances, according to the latest figures published by the State Bank of Pakistan (SBP). While inflows rose 13.1pc compared to the $2.81bn received in April last year, they were down 22pc from March, when remittances stood at $4.1bn. Cumulatively, with an inflow of $31.2bn, workers’ remittances increased by 31pc during Jul-April, FY25, compared to $23.9bn received during the same period in FY24.
In the same month, Pakistan recorded a drastic decline in foreign direct investment (FDI), receiving just $25.75m compared to $294.2m in April last year — marking a steep 91pc year-on-year drop, according to SBP data.
The figure also reflects a sharp month-on-month plunge from the $385m in FDI reported in March 2025, indicating growing investor caution amid lingering geopolitical and macroeconomic uncertainties, according to analysts.
As per SBP data, the total advances, considered a vital indicator of economic activity, dropped from Rs14.73 trillion in January to Rs13.14tr by April 2025 — an 11pc fall amounting to Rs1.59tr. On May 20, an official announcement said the country’s economy is expected to grow by 2.68pc in the current fiscal year, a revision from the earlier projected 3.6pc.
The large-scale manufacturing, as indicated by the Quantum Index of Manufacturing for 9MFY25, declined by 1.53pc though reflecting a mixed trend in production across different groups.
Pakistan’s trade deficit widened to a record $3.5bn dragging the current account surplus down to just $12m in April from a peak of $1.2bn in March
Indeed Dawn’s analysts address concerns that lowering tariffs, which Pakistan has until now used as a major source of tax revenue collection rather than for industrialisation and export growth, could lead to higher imports and, ultimately, to another balance-of-payments crisis. Such concerns, they argue, are exaggerated and are being raised by those who have made money using tariff protections. They further explain that there is no doubt that imports would rise, but exports will grow at a much faster pace, reducing trade and creating more jobs.
However, the assumption that a reformed tariff policy can do the magic on its own is misplaced, caution these analysts. Although Pakistan’s import taxes remain higher than its peers, these have come down considerably since the early 1990s, when the country embarked upon the path to economic and trade liberalisation.
Yet the fall in the average tariffs since then has not translated into proportionate export growth or significant integration into the global economy. This means there also are other policies that need to be fixed along with tariffs.
Published in Dawn, The Business and Finance Weekly, May 26th, 2025
