In March 2025, Pakistan reported a trade imbalance of Rs. 594187 million PKR. From 1957 to 2025, the country’s average trade position was -84126.65 million PKR. It peaked in June 2003 at 6457.00 million PKR and reached an all-time low of -1013894.00 million PKR in June 2022. Since 2003, Pakistan has experienced a consistent trade imbalance, mainly due to large energy imports. Since 2012, China has become Pakistan’s top trading partner, surpassing the United States. Recent data from Pakistan’s Bureau of Statistics indicates troubling trends in the country’s international trade. In April 2025, the trade deficit increased by 55.2% from March to $3.39 billion, marking the largest monthly gap since August 2022. This deficit results from both declining exports and rising imports. In April 2025, imports reached Rs. 1.55 trillion, while exports were Rs. 601.4 billion, resulting in a Rs. 952 billion trade deficit – a 55.2% increase from March. Despite this, macroeconomic indicators showed signs of recovery, with Pakistan recording its largest current account surplus of $1.2 billion in March 2025. The current account balances net current payment transfers, gross export income, and net foreign income.
In recent years, the countries with the largest trade deficits included Saudi Arabia, Kuwait, Malaysia, China, India, and the United Arab Emirates. Conversely, Pakistan has a trade surplus with Germany, the United Kingdom, Afghanistan, and the United States. Although Pakistan has received substantial remittances, supported by 2.4 million migrants over the past three years, experts are concerned that its current account may revert to a persistent deficit. Studies have shown that trade openness can negatively impact both trade balances and economic growth (e.g., Hye et al., 2014; Jawaid, 2014; Abbas, 2014).
Pakistan adopted a free trade policy in 1977 by reducing restrictions on prohibited goods and other trade barriers. During the initial reform phase, it further liberalised international trade in line with World Bank and IMF standards. Its natural resources- manpower, land, and climate- offer opportunities for growth in agriculture and labour-intensive industries. Exporting these industries is vital for external trade, with 14 key sectors- especially textiles, which comprise 45 per cent- contributing nearly 85 per cent of total exports. Over the past decade, however, export performance in these labour-intensive industries has declined due to increased global competition caused by trade liberalisation, leading to notable trade balance distortions.
The breakdown of Pakistan’s export market reveals that the country primarily has a competitive advantage in the following areas: textiles and apparel, light manufacturing, including leather goods, rubber material and plastics, agricultural products, and minerals. However, Pakistan has a very limited comparative advantage in more complex capital goods such as heavy manufacturing, transportation, energy, metals, machinery, etc. Pakistan is having difficulty increasing the speed at which its manufactured goods are produced, yet the results are not satisfactory. The framework of factories has mostly not changed since 1970. Exports and Pakistan’s industrial sector are both impacted by lower productivity. Consequently, it becomes less competitive. Pakistan needs to be aware of the international supply chains. The emerging markets in East Asia are concentrating on final products, while Pakistan, like many developing nations, is limited to exporting raw materials. Furthermore, the approach used to execute this structural change from agriculture to service sectors without considering the growth of Pakistan’s manufacturing sector is similar to that of the majority of emerging nations.
Despite the significance of the textile sector, Pakistan’s share of the world’s textile exports has steadily declined. While free trade agreements with China and Sri Lanka support exporters of high-value goods, Pakistan’s FTAs facilitate the sale of low- and medium-value textile products to Malaysia and other South Asian nations. Overall, the industry remains trapped in a low-value export cycle due to the lack of legislative support for higher-value exports. (Masood, A., Ahmed, J., & Bakhsh, K, 2025). Over the years, the EU has become one of Pakistan’s major trading partners, offering substantial opportunities for economic growth and development. The EU’s General Scheme of Preferences Plus (GSP+) has played a key role in boosting Pakistan’s exports, particularly in the agricultural and textiles sectors, while promoting compliance with environmental and human rights standards. However, a variety of complex factors, such as changing trade policies, economic interconnections, and geopolitical alliances, influence these relationships.
Reinvigorating the privately owned SME sector of the financial sector is currently one of Pakistan’s biggest economic policy challenges. This stems in part from the fact that other industries are unlikely to generate the necessary expansion in production or in employment that is fairly compensated under the current conditions. A vibrant SME sector is a valuable addition to a more open economy; in the majority of nations that seem to have benefited greatly from an export-oriented approach, the SME sector has played a significant role in that process. However, the support system will need to be significantly improved to maximise the contribution from SMEs. If accomplished, it would serve as a significant source of energy to improve large, productive businesses, increase demand for agricultural products, and help microenterprises move into the SME sector.
Due to its excessive dependence on a particular market space, Pakistan’s exports are susceptible to risks arising from shifts in the features of that market. To ensure diverse and strong export investments, policymakers should look at the possibilities of a number of BRICS countries and sectors. By proactively embracing and fostering commercial partnerships with the BRICS nations, Pakistan can foster economic development and resilience in the face of global challenges. There are both positive opportunities and difficulties in the commercial relationship between Pakistan and the BRICS nations. By adopting consistent trade strategies, conducting economic reforms, and seeking market diversification, policymakers should take advantage of the strong trade links with China, reestablish trade relations with India, and explore the opportunities in other BRICS nations.
By establishing the proper conditions through legislation, making infrastructural investments, providing financial assistance, making sure regulations are obeyed, and encouraging exports, the government plays a critical role in helping industry. The government’s share of the economy in Pakistan has increased dramatically to over 67%, which restricts private investment and entrepreneurship. The development of industries in Pakistan requires stable policies and an environment that is conducive to business. It promotes economic growth by enabling businesses to make long-term plans and drawing in both domestic and foreign investment. Building a robust and competitive industrial sector consequently requires a smaller government that ensures stable policies and a business-friendly environment.
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