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Pakistan Trade deficit jumps 18% to $7.1 billion in first two months of FY27 Trade Deficit Widens Sharply in Early FY27 Pakistan’s merchandise trade deficit widened 18 per cent to $7.1 billion during July and August, marking a difficult start to the 2026-27 fiscal year. The gap increased by around $1.1 billion from the $6.03 billion recorded during the same period last year, according to provisional data from the Pakistan Bureau of Statistics (PBS). The deterioration reflects a familiar external-sector imbalance: imports are growing considerably faster than exports, leaving the country with a widening goods gap despite a modest recovery in shipments abroad. Imports Grow Nearly Twice as Fast as Exports Pakistan’s exports increased 7 per cent during the first two months of FY27, rising by $359 million to $5.5 billion. Imports, however, climbed 13 per cent, increasing by around $1.5 billion to $12.6 billion. The difference in growth rates is the main reason behind the widening trade deficit. While exporters have managed a moderate rebound, the increase has not been strong enough to offset the much faster rise in imports. Energy, machinery, metals and industrial inputs continue to account for a significant portion of the import bill, while rice, textiles and other products remain important contributors to exports. August Shows Monthly Cooling, But Not a Better Trade Position The monthly figures offer a slightly different picture. Exports fell 15 per cent month-on-month in August to $2.5 billion, down $443 million from July. Imports also declined during the month, falling 17 per cent to $5.7 billion. As a result, the monthly trade deficit narrowed 19 per cent, or $777 million, compared with July. However, the improvement was largely a monthly movement rather than a fundamental shift in the external account. On a year-on-year basis, August’s trade deficit still increased by roughly 10 per cent to $3.2 billion. August exports were 3.8 per cent higher than a year earlier, while imports rose 7.4 per cent compared with August 2025. Export Target Faces an Early Test The government has set an export target of $32.5 billion for FY27. The early trade numbers suggest that achieving the target will require a stronger acceleration in exports over the remaining months. The government has introduced several measures intended to support exporters, including a Rs98 billion support package. The budget has also reduced minimum and advance tax on exports to 1.25 per cent and abolished the 10 per cent super tax on export income. These measures are designed to improve exporters’ cash flows and competitiveness, but the first two months have yet to show a corresponding acceleration in export growth. Strong Rupee Debate Continues Exporters have continued to argue that the relatively strong rupee is hurting their competitiveness in international markets. The real effective exchange rate, however, indicates around 8 per cent depreciation against the dollar basket, suggesting that the exchange-rate picture is more complicated than the nominal rupee-dollar rate alone. The challenge for policymakers is to balance exchange-rate stability with the need to maintain export competitiveness while avoiding renewed pressure on imported inflation. Trade Performance Differs From Earlier Projections The early FY27 numbers are also running against some earlier expectations. World Bank work related to Pakistan’s National Tariff Policy had projected export growth of around 14 per cent alongside a 7 per cent increase in imports. The first two months have instead produced a 7 per cent rise in exports against a 13 per cent jump in imports. Ministry of Commerce projections had also been more optimistic about the pace of export growth. The divergence does not necessarily determine the full-year outcome, but it highlights the scale of the improvement that will be required if the government is to meet its trade and external-sector objectives. Remittances and Borrowing Remain Important Buffers Pakistan’s widening goods deficit continues to be supported by inflows from outside the merchandise trade account. Remittances and external borrowing remain important sources of foreign exchange for covering the gap between exports and imports. The two-month trade deficit of $7.1 billion is already substantially larger than the $3 billion raised by Pakistan through its latest international debt transaction. The August deficit alone was around $170 million larger than that debt raise. Foreign direct investment has also remained relatively weak, with inflows recorded at $1.64 billion during FY26 despite efforts under the Special Investment Facilitation Council. A Wider Deficit Could Add Pressure on Reserves The widening trade gap matters because persistent goods deficits increase Pakistan’s need for other sources of foreign exchange. If the current two-month pattern were simply annualised without a significant improvement in exports, the goods deficit would remain well above the level of fresh external debt inflows. That could keep pressure on foreign exchange reserves, the rupee and the government’s ability to manage upcoming external debt repayments. A monthly decline in the August deficit therefore does not change the broader year-to-date picture. Ten Months Remain to Turn the Trend Around Pakistan still has ten months of FY27 to improve the trade balance. The government’s export support measures, tax changes and broader trade-policy reforms will now face a practical test: whether they can generate export growth fast enough to keep pace with rising imports. For now, the direction remains clear. Imports are expanding at almost twice the pace of exports, leaving Pakistan with an $7.1 billion goods deficit after only two months of the fiscal year. PBS trade figures are provisional and can be revised in subsequent releases. Even with that caveat, the early data underline the challenge facing policymakers. Unless exports gain stronger momentum, Pakistan’s external account will continue to rely heavily on remittances and borrowed dollars rather than a narrowing trade gap.