Pakistan’s trade deficit with nine neighbouring countries recorded a sharp increase during the first five months of fiscal year 2025-26, rising by 39.33% to $6.221 billion, according to the latest data released by the State Bank of Pakistan. During the same period last year, the deficit stood at $4.465 billion, highlighting a significant deterioration in the country’s regional trade balance.
The widening trade gap has been largely attributed to a notable decline in Pakistan’s exports to neighbouring countries, particularly China and Afghanistan. Data shows that exports to China fell by 6.84% during the July–November period of FY2025-26, amounting to $982.98 million compared to the corresponding period last year. China remains Pakistan’s largest regional trading partner, and any contraction in exports to the Chinese market has a direct and substantial impact on the overall trade balance.
Exports to Afghanistan witnessed a far steeper decline, plunging by 94.72% to just $210.56 million in the first five months of FY2025-26. The sharp fall is largely linked to the suspension of all trade with Afghanistan, including exports, which came into effect on October 10, 2025. The halt in cross-border trade disrupted one of Pakistan’s traditional export destinations, significantly affecting regional export figures.
Exports to India showed a marginal increase during the review period; however, their overall value remained relatively insignificant in the broader context of Pakistan’s regional trade. Similarly, exports to Bangladesh and Sri Lanka experienced negative growth, further contributing to the overall decline in exports to neighbouring countries. The data indicates that Pakistan struggled to maintain export momentum across most regional markets during the period under review.
For the full fiscal year 2025, the trade deficit with these neighbouring countries also showed a substantial increase. The deficit expanded by 29.42% to $12.297 billion, compared to $9.502 billion in the previous fiscal year. This trend reflects persistent structural challenges in Pakistan’s regional trade, including limited export diversification, competitiveness issues, and external shocks affecting cross-border commerce.
On the import side, Pakistan’s imports from neighbouring countries rose sharply during the first five months of FY2025-26. Total imports increased by 22.06% to $7.856 billion, compared to $6.436 billion in the same period last year. The surge in imports further contributed to the widening trade deficit, offsetting any limited gains made on the export front.
Imports from China accounted for the bulk of the increase in regional imports. Data shows that imports from China rose by 22.90% to $7.713 billion during the July–November period of FY2025-26. China continues to dominate Pakistan’s import profile, supplying a wide range of goods including machinery, electronics, raw materials, and industrial inputs. The growing reliance on Chinese imports underscores Pakistan’s deepening trade dependence on its largest trading partner.
In contrast, imports from India declined during the same period. Imports from India fell by 19.11%, dropping to $76.67 million in the first five months of FY2025-26. Despite the reduction in imports, exports to India increased significantly, reaching $2.93 million during the review period. However, bilateral trade between the two countries remains limited due to long-standing political and trade restrictions.
Economists note that the rising trade deficit with neighbouring countries reflects broader challenges facing Pakistan’s external sector. These include weak export performance, disruptions in regional trade routes, and rising import demand amid domestic economic pressures. The suspension of trade with Afghanistan and slowing exports to China have further exacerbated the imbalance.
Analysts also point out that improving regional trade outcomes will require a combination of policy measures, including export diversification, improved market access, enhanced trade facilitation, and stability in cross-border trade arrangements. Without addressing these structural issues, Pakistan may continue to face pressure on its trade balance and foreign exchange reserves.
The latest State Bank data highlights the urgency for Pakistan to reassess its regional trade strategy. As the country navigates economic stabilisation efforts, strengthening exports and managing import growth will remain critical to narrowing the trade deficit and supporting sustainable economic growth.
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