Trade gap hits $2.3b as imports stay high

Pakistan's trade deficit remained high at $2.3 billion in January 2025 after imports stayed above $5.2 billion for the second consecutive month, the national data collecting agency reported on Monday.

Exports too exhibited a healthy growth momentum and stood close to $3 billion. But these are still not enough to plug the gap despite having restricted imports.

Pakistan Bureau of Statistics (PBS) reported that the trade deficit – the gap between imports and exports – widened nearly 18% in January compared to the same month of last year.

The key reason behind the jump in deficit was $5.24 billion worth of imports. It was the second consecutive month in recent times when imports crossed $5 billion. There was a $477 million, or 10%, increase in imports last month.

Import restrictions, mostly informal, have been in place for the past almost three years due to external sector challenges. The government has managed to bring the current account deficit under control on the back of compressed imports and some increase in the formal non-debt creating inflows.

Deputy Prime Minister Ishaq Dar said last week that a permanent solution to Pakistan's external sector problems was a further annual increase of $10 billion in exports, another $10 billion rise in foreign remittances and reduction in imports by $10 billion through the replacement of imported goods with local manufacturing. Till November last year, imports were kept around $4.5 billion a month due to the less availability of foreign exchange and the central bank's policy to buy dollars from the market to build its reserves.

The inflow of foreign loans still remains low despite the International Monetary Fund's (IMF) programme. Consequently, the central bank resorted to massive dollar buying and purchased $9 billion from the market in calendar year 2024 alone.

Without market purchases, the central bank's foreign exchange reserves would have been at very low levels. But still the gross official foreign exchange reserves remained around $11-12 billion – below the minimum threshold that can provide three months of import cover.

The reserves have been on the wane over the past few weeks and are standing below $11.4 billion despite bulk purchases of dollars by the central bank.

Exports continued their upward movement and stood above $2.9 billion in January. There was nearly 5% increase in exports on a year-on-year basis.

A healthy momentum has been observed in exports and remittances from overseas Pakistanis – the two most critical non-debt creating sources of foreign inflows – during the current fiscal year. This provides an additional cushion of at least $800 million per month.

During the first seven months (July-January) of the current fiscal year, imports grew nearly 7%, or $2.2 billion. Total imports stood at $33 billion. Compared to that, exports for seven months amounted to $19.6 billion, up $1.8 billion, or 10%.

As a result, the seven-month trade deficit came in at $13.5 billion, up 3%, or $372 million. For a country having a little below $11.5 billion in foreign exchange reserves, the $13.5 billion trade deficit is too high, which has to be bridged by consuming foreign remittances.

State Bank of Pakistan Governor Jameel Ahmad said last month that Pakistan would achieve its annual export target.

On a monthly basis, there was a reduction in imports while exports remained flat. Owing to this, the trade deficit contracted $134 million, or 5.5%, in January over December.