Pakistan’s trade deficit with nine neighbouring countries widened by 26.62% to $4.97 billion during the first quarter of fiscal year 2026-27, compared with $3.93 billion in the corresponding period last year, as imports increased and exports to regional markets declined. The latest data compiled by the State Bank of Pakistan (SBP) show that the deterioration in the regional trade balance was driven by a combination of higher imports from China and weaker export performance in several neighbouring markets. Pakistan’s exports to Afghanistan, Bangladesh and Sri Lanka declined during July-September, while the suspension of trade with Afghanistan continued to weigh on regional shipments. Although exports to China recorded growth, the increase was insufficient to offset the broader decline in exports and the substantial rise in imports. The figures highlight the challenges Pakistan faces in improving its regional trade balance and expanding access to neighbouring markets.
Pakistan’s combined exports to Afghanistan, China, Bangladesh, Sri Lanka, India, Iran, Nepal, Bhutan and the Maldives fell by 6.72% to $944.24 million during the first three months of FY27, compared with approximately $1.01 billion in the same period of the previous fiscal year. In contrast, imports from these nine countries increased by 19.79% to $5.92 billion from $4.94 billion. The difference between export earnings and import expenditure consequently widened, pushing the regional trade deficit to nearly $5 billion within the first quarter. The export decline indicates that Pakistan’s regional sales have faced pressure despite continued trade flows with several neighbouring economies. Meanwhile, the increase in imports, particularly from China, contributed substantially to the widening imbalance. The contrasting movements in exports and imports demonstrate how a decline in overseas sales combined with higher purchases from abroad can put additional pressure on the country’s trade position.
China remained Pakistan’s largest trading partner among the nine neighbouring countries covered in the data and accounted for most of the increase in the combined regional trade deficit. Imports from China rose by 19.76% to $5.82 billion during July-September FY27, compared with $4.85 billion in the corresponding period last year. Pakistan’s exports to China also increased, rising by 17.95% to $663.57 million from $562.56 million. Despite the improvement in export earnings, the substantially larger value of imports meant that Pakistan continued to record a significant bilateral trade deficit with China. The deficit with China widened by $858.808 million, accounting for approximately 82.18% of the increase in the combined trade deficit with all nine neighbouring countries. These figures underline China’s central role in Pakistan’s regional trade balance, with developments in bilateral imports and exports having a considerable effect on the overall deficit.
Trade with Afghanistan recorded one of the sharpest declines during the reporting period. Pakistan’s exports to Afghanistan fell by 88.34% to $18.86 million in the first quarter of FY27, compared with $161.76 million in the same period last year. Imports from Afghanistan also declined significantly, falling by 94.40% to $0.25 million from $4.52 million. The decline in cross-border trade comes amid the continued suspension of trade with Afghanistan, including exports, since October 10, 2025. The interruption has restricted Pakistan’s ability to supply goods to the Afghan market and has contributed to the reduction in regional export earnings. While imports from Afghanistan also fell sharply, their comparatively small value meant that the decline could not offset the loss of export activity. The figures illustrate the effect that prolonged disruptions to cross-border commercial relations can have on established regional trade flows.
Pakistan’s trade with Bangladesh also weakened, although the changes were less pronounced than those recorded with Afghanistan. Exports to Bangladesh declined by 2.96% to $174.77 million during July-September FY27, compared with $180.12 million in the corresponding period last year. Imports from Bangladesh fell by 36.11% to $13.88 million from $21.73 million. The reduction in imports helped limit the increase in Pakistan’s bilateral trade imbalance with Bangladesh, but lower export earnings added to the broader weakness in regional shipments. Bangladesh remains an important destination for Pakistani goods within the group of neighbouring markets covered by the SBP data. The decline in exports suggests that Pakistan’s regional trade performance was affected by conditions beyond the disruptions associated with Afghanistan, with weaker shipments to multiple destinations contributing to the overall contraction.
Trade with India showed a different pattern, with imports increasing substantially despite the absence of recorded Pakistani exports. Imports from India rose by 68.90% to $61.74 million in the first quarter of FY27, compared with $36.55 million in the corresponding period last year. The SBP data recorded no exports from Pakistan to India during the quarter. The increase in imports therefore contributed to the regional trade imbalance, although the value of purchases from India remained much smaller than Pakistan’s imports from China. The figures demonstrate the uneven distribution of trade flows across the nine neighbouring economies, with China accounting for the overwhelming majority of imports while trade with other countries represented considerably smaller amounts. Changes in individual bilateral relationships consequently had different effects on Pakistan’s aggregate regional trade position.
Exports to China rose in both percentage and dollar terms, while shipments to Nepal also increased in percentage terms, although the gain in dollar value was negligible. These improvements were outweighed by declines in exports to Afghanistan, Bangladesh and Sri Lanka, contributing to the overall 6.72% reduction in regional export earnings. The available figures establish the direction of trade movements but do not provide detailed export values for every neighbouring country in the reporting period. Nevertheless, the aggregate data show that stronger performance in selected markets was insufficient to compensate for weakness elsewhere. Pakistan’s export performance across the region therefore remained uneven, with substantial differences between individual destinations and the scale of commercial activity taking place with each country.
The widening regional trade deficit presents a challenge for Pakistan as it seeks to strengthen export earnings and manage external financial pressures during FY27. Higher imports can reflect demand for goods and industrial inputs, but when import expenditure grows faster than export receipts, the resulting imbalance increases the amount of foreign currency required to settle trade payments. The latest figures show that imports from the nine neighbouring countries increased by nearly one-fifth while exports contracted during the same period. China’s contribution to the widening deficit, together with the disruption of trade with Afghanistan and weaker shipments to Bangladesh and Sri Lanka, shaped the overall outcome. Reversing the trend would require stronger export performance across regional markets and careful monitoring of import developments. The first-quarter data provide an early indication of the pressures affecting Pakistan’s regional trade balance, although the figures for the remaining months of FY27 will determine whether the deficit continues to widen or begins to moderate.
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