Given Pakistan’s consistent import tariff reduction, and a further cut on the radar under the National Tariff Policy 2025-30, the country’s growing trade deficit woes are expected to further exacerbate, experts say.
Policy Research & Advisory Council (PRAC) Head of Research Dr Usama Ehsan Khan told Business Recorder that Pakistan had repeatedly reduced tariffs – such as the steep reduction from very high levels to much lower averages in earlier liberalisation phases. Average tariffs were being reduced from 10.4% to below 6% by 2030 under the National Tariff Policy, which would open the market to imported goods, he added.
“Meanwhile, domestic industry, stuck in low-value production and premature de-industrialisation, is not expanding or upgrading fast enough to compete locally or improve exports.”
A trade deficit occurs when a country imports more goods and services than it exports, creating a negative trade balance.
According to the Pakistan Bureau of Statistics (PBS), the country’s trade deficit significantly increased by nearly 33% to $2.86 billion in November 2025, as compared to the same month of the previous year. Exports in November 2025 stood at $2.39 billion, down 15.4% against $2.83 billion recorded in November 2024. Imports were recorded at $5.25 billion, up over 5% against $4.98 billion in the same period last year.
During the first five months of the fiscal year 2025-26 (5MFY26), the country’s trade deficit increased by over 37% to $15.47 billion from $11.28 billion recorded in the same period the previous year.
If the trade deficit expands, Pakistan may face higher financing needs, renewed pressure on reserves/exchange rate, and difficulty in meeting IMF performance criteria—thereby jeopardising programme continuity or requiring additional tightening measures.
Pakistan’s imports jumped far faster than exports, jumping multiple times over 1995–2025 while exports rose modestly, according to PRAC official.
“Trade deficit can widen even in weak growth periods because import demand is not only about industrial expansion; it also reflects finished goods and consumption imports, and a structural dependence on foreign goods when domestic capacity is uncompetitive.
“Pakistan’s export expansion is also constrained by limited market access, so exports don’t grow proportionately even when policy changes aim at integration,” Khan said.
Meanwhile, AKD Securities Research Director Muhammad Awais Ashraf said imports had risen due to increased industrial activity, as reflected in higher machinery and metal-group inflows.
“Disruptions in the food supply chain and lower cotton output due to floods also added pressure on food and textile sector imports,” he said.
However, the most concerning trend is the surge in automobile imports, which have more than doubled to $1.4 billion during the first four months of the current fiscal year, according to Ashraf.
On the export front, he added, overall performance had weakened primarily due to a decline in rice and vegetable exports, both impacted by floods and an intense monsoon season.
“Interestingly, knitwear and bedwear exports grew by 16.5% and 7.2% in quantity terms however impact diluted by drop in per unit rates.”
‘A risk under IMF programme’
A larger trade deficit typically worsens the current account and pressures external sector stability, which are central to International Monetary Fund (IMF) programme targets and reviews.
“The new tariff policy poses a risk to external sector stability and can undermine the hard-earned current account improvement. If the trade deficit expands, Pakistan may face higher financing needs, renewed pressure on reserves/exchange rate, and difficulty in meeting IMF performance criteria—thereby jeopardising programme continuity or requiring additional tightening measures,” Dr Usama Ehsan Khan said.
Pakistan’s current account posts $112mn deficit in October 2025
However, Muhammad Awais Ashraf was of the view that the current account remained manageable despite an increase in the trade deficit, “supported by robust remittances and controlled interest payments”.
“Moreover, we do not anticipate any disruption to the IMF programme due to the rise in imports, as several policy tools, such as higher real interest rates and exchange-rate flexibility, remain available to address external pressures,” he maintained.
