Pakistan’s trade deficit swells to $2.44bn in December

ISLAMABAD: Pakistan’s merchandise trade deficit widened to $2.44 billion in December 2024, a 35 percent year-on-year increase and the highest level since April, according to data released Wednesday by the Pakistan Bureau of Statistics (PBS).

The rise in the deficit was largely driven by a sharp increase in imports, which reached a 27-month high.

Exports for December stood at $2.84 billion, reflecting a modest 0.67 percent YoY increase, while imports soared to $5.285 billion, registering a 14 percent YoY rise. Month-on-month (MoM) comparisons showed a 47 percent spike in the trade deficit compared to November’s $1.667 billion, as imports grew by 17.4 percent while exports remained almost stagnant with a marginal 0.28 percent rise.

Exports showed little momentum, inching up from $2.833 billion in November 2024 to $2.841 billion in December. Analysts cite subdued global demand for Pakistan’s key export items, such as textiles, as a key factor limiting growth. In contrast, imports skyrocketed, fueled by rising demand for essential commodities and raw materials, with the December figure of $5.28 billion being the highest since September 2022.

For the first half of the fiscal year 2024-25 (July-December), the trade deficit stood at $11.17 billion, up by a marginal 0.18 percent YoY compared to the same period last year. Exports during this period rose by 11 percent to $16.56 billion, while imports increased by 6.1 percent, reaching $27.7 billion.

While the first-half trade figures suggest stability, December’s steep import bill threatens to unravel the tenuous balance. “The rising import trajectory is concerning, especially when paired with sluggish export growth,” warned a senior economist.

The widening trade gap poses challenges for Pakistan’s policymakers, who are grappling with multiple economic pressures.

Experts suggest targeted measures to boost exports, such as diversifying export products and exploring new markets. “Without a strategic focus on improving export competitiveness, the trade imbalance will continue to exert pressure on the economy,” said an industry analyst.

Policymakers must find ways to strike a balance between sustaining essential imports and curbing the trade deficit, which remains a key driver of external account vulnerabilities.

The PBS also reported on trade in services for July-November of the current fiscal. The services sector, which includes information technology, financial services and professional consultancy, presents significant potential for growth, particularly in global markets.

Pakistan’s services trade deficit showed signs of improvement during the first five months of fiscal year 2024-25 (July-November), shrinking to $1.15 billion, a 8.5 percent year-on-year (YoY) reduction compared to the $1.257 billion deficit recorded in the same period last year.

The improvement was driven by $3.27 billion in services exports, up by 7.6pc from $3.04 billion in the corresponding period of the previous fiscal year. Services imports, meanwhile, stood at $4.425 billion, increasing 2.9 percent than the $4.3 billion recorded last year.

In November 2024, the services trade deficit declined significantly to $152.9 million, a 42.4 percent reduction from October’s $265.4 million. The decline was fueled by a 13.1 percent month-on-month (MoM) drop in services imports, which stood at $828.6 million in November compared to $953 million in October.

On the export side, November services exports dipped slightly by 1.76 percent to $675.7 million, down from $687.8 million in October. However, on a YoY basis, November exports rose 6.5 percent from $634.4 million in November 2023, reflecting a positive trend in Pakistan’s services sector performance.

The YoY comparison for November 2024 shows a 4.6 percent increase in services imports, which rose to $828.6 million from $792 million in November 2023. Despite this rise, the concurrent growth in exports underscores improving efficiency in the services sector, which is critical for diversifying Pakistan’s economic portfolio beyond traditional goods exports.

“The consistent improvement in services exports is encouraging, but there is a need for strategic investment to expand this sector further,” said a senior trade analyst.