Trade deficit widens 44% in July | The Express Tribune

ISLAMABAD:

As Pakistan’s trade deficit widened 44% in July due to a sharp rise in imports, Planning Minister Ahsan Iqbal on Tuesday expressed hope that it would be a “temporary dip,” likely to be offset by an increase in exports driven by higher imports of raw materials.

While launching the first monthly development report for the fiscal year 2025-26, the minister said the benefit of the lowest US tariffs on Pakistan in the region would depend on exporters’ ability to seize the opportunity by penetrating foreign markets.

The 44% higher trade deficit in July “is a temporary dip and will be offset by the increase in exports” in coming months, Iqbal said, when asked if the sudden jump was linked to the government’s policy of opening the economy for foreign competition.

The government reduced import tariffs in the budget as part of conditions set by the International Monetary Fund (IMF) and the World Bank. The Pakistan Bureau of Statistics (PBS) reported last week that the trade deficit rose to $2.7 billion, or 44% higher, in July.

Authorities said it was too early to assess the impact of trade liberalisation, noting one possible reason for the surge in imports was that importers had delayed consignments to benefit from reduced rates starting in the new fiscal year.

Iqbal said the government had revised the initial trade liberalisation plan by lowering duties only on items that could boost exports. He added that macroeconomic stability had strengthened, with exports posting a 17% increase in July, which was a reflection of external sector stability.

In July, exports grew by 16.9%, reaching $2.7 billion from $2.3 billion in the same month last year, according to the Planning Commission’s monthly report. It added that foreign remittances rose 7.4% last month to $3.2 billion, indicating growing confidence among overseas Pakistanis in the government’s economic management and overall stability.

When asked about the impact of the US trade deal, under which Pakistan agreed to zero tariffs on over 4,100 tariff lines in exchange for a 19% additional customs duty rate, Iqbal said exporters should capitalise on the lowest tariffs on Pakistan compared to the region.

US President Donald Trump imposed a 19% additional tariff on Pakistani exports, compared to around 20% for the region, except India, which faces a 50% additional tariff.

The Pak-US trade deal should not be viewed merely in terms of the number of tariff lines receiving relief, said Dr Imtiaz Ahmad, Pakistan’s chief economist, but in the context of a gradual increase in foreign direct investment.

The government hopes investors from regional countries will set up operations in Pakistan to export goods to US and EU markets. However, the fine details of the trade deal, including rules of origin, are yet to be finalised.

The national development report stated that Pakistan entered the new fiscal year with stronger economic performance, marked by improved fiscal management, a turnaround in the external sector from deficit to surplus, falling inflation, and renewed investor confidence.

Despite the IMF’s warning of slower global growth and persistent downside risks, Pakistan has achieved macroeconomic stability, said Iqbal.

He added that at a time when global uncertainty weighs on developing economies, Pakistan’s policy-driven turnaround signals a notable shift in its economic trajectory and a promising start to FY2026.

Strong fiscal consolidation reduced the deficit to 5.4% of GDP in FY2025, down from 6.9% the previous year. The external sector posted a $2.1 billion current account surplus, driven by higher exports and record remittances, he said.

Iqbal further stated that revised accounts from the Accountant General of Pakistan Revenue (AGPR) showed total development spending in the last fiscal year rose to Rs1.068 trillion, which is a new record.

The government had earlier reported Rs1.048 trillion in spending in the fiscal operations data released by the Ministry of Finance last week. The Public Sector Development Programme (PSDP) spending now equals 98% of the total annual development budget.

In FY2025, 260 projects were monitored, with 40 of strategic nature evaluated. For FY2025-26, the target is to monitor 251 projects and evaluate 50, he said. Iqbal again criticised the finance ministry’s strategy of releasing 40% of the total budget in the last quarter, which he argued leads to wastage and strains budgetary resources.

“We are in discussions with the Finance Division to withhold only 30% of the total budget for the last quarter and disburse the rest in the first three quarters,” said Iqbal. The finance ministry’s current quarterly release strategy allows 15% spending in the first quarter, 20% in the second, 25% in the third, and 40% in the last quarter.