Pakistan’s trade deficit widened by 25.2 percent year on year to nearly $4 billion in July 2026, as a sharp rise in imports outweighed growth in exports and renewed concerns over the country’s external sector position. According to data released by the Pakistan Bureau of Statistics, the trade gap increased to $3.95 billion during July from $3.2 billion in the same month last year, representing an increase of $794 million.
The deterioration was largely driven by a substantial increase in imports. Pakistan’s imports rose from $5.8 billion in July last year to $6.9 billion during July 2026, marking an increase of more than $1 billion, or approximately 18 percent. The increase came despite government measures aimed at strengthening exports and improving the competitiveness of domestic businesses.
Exports, meanwhile, increased by $256 million, or 9.5 percent, on an annual basis. Total exports stood at approximately $2.94 billion in July, remaining $61 million below the $3 billion mark. Although the monthly export figure represented growth compared with the same period last year, the increase was insufficient to offset the much larger rise in imports.
The latest figures have raised questions about the impact of Pakistan’s trade and tariff policies at a time when the government is reducing tariff barriers and opening the domestic economy to greater foreign competition. The policy has been developed with input from international institutions and foreign consultants, including the World Bank and the International Monetary Fund.
The World Bank had previously projected that the new tariff structure could result in a 14 percent increase in exports alongside a 7 percent rise in imports. The latest trade figures, however, show a considerably stronger increase in imports compared with exports. In the previous fiscal year, Pakistan’s exports declined by 6 percent to approximately $30 billion.
The reduction in tariff barriers has also raised concerns about the conditions faced by domestic businesses competing in international markets. Businesses have sought greater certainty over factors including exchange rates, interest rates, taxation and energy costs, all of which can influence the ability of exporters to remain competitive.
The government has introduced several measures intended to support exporters. In the federal budget, Prime Minister Shehbaz Sharif announced additional incentives, including a reduction in minimum and advance taxes applicable to exporters to 1.25 percent and the removal of the 10 percent super tax on exports.
The government also approved a Rs98 billion subsidy package for exporters for the current fiscal year. The package includes three dedicated schemes designed to increase export activity and provide businesses with access to financing.
Under the Export Exporters Finance Scheme, working capital loans will be provided to exporters for six months at an interest rate of 8.5 percent. The government will absorb 5 percentage points of the interest cost, requiring an estimated subsidy of Rs58 billion during the current fiscal year.
The Economic Coordination Committee also approved an increase in the existing portfolio for the short-term financing scheme from Rs1 trillion to Rs1.5 trillion. In addition, it approved the Long-term Growth Financing Facility, under which exporters will be able to access financing at an interest rate of 2 percent for two years, followed by a fixed rate of 5 percent for the subsequent eight years.
Another measure is a performance-based rebate scheme for incremental exports, introduced from July 1, 2026. The scheme has an estimated annual cost of Rs15 billion and is intended to reward exporters that increase their annual export value.
Under the scheme, exporters achieving growth of up to 10 percent over the previous year will qualify for a rebate equivalent to 1 percent of their incremental export value. Those recording annual export growth of more than 10 percent will qualify for a rebate equivalent to 2 percent of their incremental export value.
Despite decades of export incentives and support measures, the latest figures point to continued difficulties in producing sustained growth at the required scale. The reported data also highlights the challenge of expanding exports sufficiently to counter rising import demand.
On a month-on-month basis, the export picture was considerably stronger. Pakistan’s exports increased by 31 percent in July compared with June, rising by approximately $697 million to just below $3 billion. Imports, however, remained close to $7 billion and were broadly stagnant compared with the previous month.
As a result, the monthly trade deficit actually narrowed by 15 percent, or $709 million, compared with June. The month-on-month improvement, however, was not enough to prevent a substantial annual increase in the trade gap.
Pakistan had crossed the $3 billion monthly export threshold in January 2026, when exports reached approximately $3.05 billion. The country has not been able to sustain that level in subsequent months, underscoring the difficulty of maintaining higher export volumes consistently.
For the current fiscal year, the government has set an export target of $32.5 billion while projecting imports at $70 billion. The difference between the two is expected to remain an important external financing requirement, with foreign remittances playing a significant role in supporting the country’s external account.
The July trade figures therefore present a mixed picture for Pakistan’s external sector. While exports recorded annual and monthly growth, the much faster increase in imports widened the overall trade deficit. The latest data places greater importance on whether the government’s new financing facilities, tax measures, rebates and export support schemes can generate sustained increases in export earnings rather than short-term improvements.
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