Export target missed by $5.2b
There are apprehensions that some exporters keep part of their proceeds overseas by understating the value of their goods or bringing some as exports of services to avoid income tax, according to sources. photo:file
The government has missed the export target by a wide margin of $5.2 billion, as receipts during the last fiscal year plunged to $30.1 billion, causing a double-digit increase in the trade deficit and exposing underlying economic vulnerabilities.
The annual trade deficit shot up to $7 billion in FY2025-26 due to a dip in exports and a jump in imports – a sum equal to the size of the three-year International Monetary Fund (IMF) bailout package. The target was missed in the middle of a recommendation by the Planning Commission last month to the National Economic Council (NEC) to "shift (economic) incentives from protection and rent-seeking to productivity and export performance". However, the government did not implement the recommendation and again gave general export subsidies.
"Exports are targeted at $35.3 billion for FY 2025-26, aligned with the National Economic Transformation Plan 2024-29," reads the Annual Plan for the last fiscal year that ended on Tuesday.
But the Pakistan Bureau of Statistics (PBS) reported on Thursday that exports fell to just $30.1 billion during FY2025-26, down 6% year-on-year. Exports remained $5.2 billion below the official target, an outcome that cannot guarantee Pakistan's permanent exit from the IMF. Planning Minister Ahsan Iqbal recently said the country cannot leave the IMF until it increases exports to sustainable levels.
The government has already missed the IMF's tax collection target by a wide margin of Rs975 billion or $3.5 billion for FY2025-26. In absolute terms, exports were $1.9 billion less than the same period last year, nearly equal to two loan tranches Pakistan receives from the IMF every year after implementing harsh conditions.
The gap between imports and exports reached $39.5 billion during the last fiscal year. The deficit was $7 billion, or 21.6%, higher than the same period last year. The trade deficit was more than double Pakistan's gross official foreign exchange reserves.
Exports remained in negative territory while imports grew in double digits on the back of duty relaxation in the budget and higher petroleum prices following the Middle East conflict. Imports grew to $69.6 billion, a jump of $5.1 billion, or 7.9%, compared with a year ago.
Containing imports in the new fiscal year will be an uphill task. For FY2026-27, the exports target is set at just $32.8 billion – higher by only 8.5% over last year's exports of $30.1 billion. The export target is not in line with the National Economic Plan goals set for 2029.
Imports are projected to cross $70 billion next fiscal year. As a result, the trade deficit for the new fiscal year is targeted at $37 billion, which will be largely filled on the back of remittances.
Exporters have claimed the rupee is overvalued by 5%, eroding their competitive edge and keeping them focused on the local market. The rupee-dollar parity remained around Rs278.15 to a dollar on Thursday.
But there are also apprehensions that some exporters keep part of their proceeds overseas by understating the value of their goods or bringing some as exports of services to avoid income tax, according to sources.
The government has been incentivising exporters without linking budget subsidies to performance – an issue the Planning Commission also highlighted in its recommendations to the NEC. In the budget, the government allocated Rs88 billion to provide loans to exporters at 4.5% interest rates. But it has withdrawn Rs76 billion in subsidies for foreign remittances given through banks and foreign exchange companies to cover transfer costs to Pakistan.
Under the IMF programme, the government has committed to cutting import taxes by 52% over five years. However, trade liberalisation is not yet supported by an increase in exports, putting the external sector under pressure.
The PBS data showed exports decreased to just $2.2 billion in June, down $238 million, or 9.6%, from the same month last year. Imports increased by $1.4 billion last month to $6.8 billion. As a result, the trade deficit widened 57% to $4.5 billion. In absolute terms, the monthly deficit increased by $1.6 billion. On a month-on-month basis, the trade deficit expanded over 63% due to a 17% reduction in exports and a 24% increase in imports. The Planning Commission also recommended to the NEC – which has representation from the centre and four provinces – to improve human indicators for sustainable export growth. Its presentation showed regional countries that invested in human capital made faster progress in enhancing exports.
Pakistan's biggest competitive disadvantage is its literacy rate, which has improved to approximately 63% but remains significantly below regional competitors, said Iqbal. Export growth follows human capital growth, and no country has become an export powerhouse with weak education outcomes, he added.
The minister said Pakistan heavily relies on remittances, multilateral loans and commercial borrowing to meet current account requirements. "We must shift our focus from loans and aid to increasing exports and investment, and reducing imports through enhanced productivity and innovation," he added.