Rebalancing Pakistan’s economy

This article provides an overview of Pakistan’s trade challenges in 2025, focusing on the USD 29.4 billion trade deficit, energy dependency, and economic instability. It looks at key factors driving these issues and suggests ways to stabilize the economy and encourage sustainable growth.As we look into 2026, it’s important to reflect on the economic pressures that defined the trade imbalance in 2025. The country faced a serious USD 29.4 billion trade deficit, primarily due to its reliance on energy and machinery imports. The article has a closer look at Pakistan’s import and export trends in 2025, including data from the first seven months of fiscal year 2026, and outlines the necessary steps to stabilize the economy and improve on these indicators moving forward.During the first seven months of fiscal year 2026, Pakistan’s non-textile exports fell sharply by 17.32 percent, reaching USD 7.286 billion. This decline was largely due to a slump in agricultural produce and weaker demand for value-added shipments. Rice exports, for example, dropped 40.51 percent due to lower prices and weaker global demand. Export volumes also fell by 32.94 percent, showing the real challenges faced by the agricultural sector. Despite these setbacks, some other sectors performed better. Engineering goods exports grew by 5.85 percent, driven by higher shipments of industrial machinery, auto parts, and transport equipment. Cement exports showed resilience, growing by 9.91 percent in value, even in the face of logistical disruptions like the Torkham border closure. Footwear exports grew by 3.51 percent, though this was uneven, with certain categories like canvass footwear seeing a large drop.The agriculture sector continued to struggle, with rice exports particularly hit. However, sectors like engineering goods, footwear, and cement showed some positive movement. These sectors offer hope for economic diversification and point to opportunities for expanding beyond traditional exports.Pakistan’s energy sector remains highly reliant on foreign sources, with 91 percent of its oil needs met through imports. Although domestic natural gas production meets 74 percent of demand, renewable energy contributes just 4 percent of the energy mix. This over-dependence on foreign energy sources puts pressure on foreign exchange reserves and adds to inflation, worsening the trade deficit.In 2025, total imports amounted to USD 70.09 billion, with petroleum, machinery, chemicals, and food making up the bulk of these imports. On the other hand, exports totalled only USD 40.69 billion, largely driven by textiles, agriculture, and machinery. The gap between imports and exports continues to pressure the currency and poses a serious risk to the economy’s stability.Oil and machinery imports were the primary contributors to the trade deficit, accounting for 21.6 percent and 10.6 percent of total imports, respectively. This dependency on expensive imports has led to rising borrowing costs and strained foreign exchange reserves. To address these issues, the government should focus on offering targeted subsidies to local industries and making significant investments in key infrastructure, particularly in the energy and manufacturing sectors. Public participation will be vital as well, encouraging local consumption and supporting entrepreneurship to help reduce dependency on imports.Looking ahead, reducing the trade deficit requires a major shift toward energy independence. Expanding renewable energy sources, such as solar, wind, and hydroelectric power, can help Pakistan reduce its reliance on expensive energy imports. Additionally, boosting local oil and gas exploration can lessen the need for costly LNG and help stabilize the energy sector.To minimize economic vulnerability, Pakistan must also diversify its export base. While textiles remain a dominant export, there is great potential in expanding into value-added products, like machinery, electronics, and processed foods. Opening up new export markets and focusing on higher-value products will improve Pakistan’s competitiveness on the global stage and help reduce the reliance on raw materials.Technological advancements, particularly in areas like Industry 4.0 and the digital economy, can play a crucial role in boosting efficiency and competitiveness. Strengthening the country’s digital infrastructure and promoting e-commerce can drive Pakistan’s transition to a more competitive, knowledge-driven economy. Public awareness campaigns that encourage local consumption and sustainable practices will also contribute to reducing the trade deficit and stabilizing the economy.Furthermore, strengthening regional trade ties and investing in domestic industries capable of import substitution will be essential. By producing key goods locally, Pakistan can reduce its dependency on foreign products and foster a more self-sufficient economy.Pakistan’s economic future lies in finding a balance between market freedom and government intervention. Countries like Sweden offer valuable lessons in combining market-driven policies with strong social investments in education, healthcare, and infrastructure. Sweden’s approach shows that economic growth can thrive alongside efforts to reduce inequality and ensure stability.For Pakistan, this balance requires strong, predictable institutions, independent regulators, and clear long-term economic priorities. A stable economy must also invest heavily in areas where markets typically fail — such as education, healthcare, and social safety nets. When people are healthy, educated, and secure, they are better positioned to contribute productively to the economy.Market distortions, like cartelization and excessive discretion, need to be reduced. Transparency, competition, and accountability should govern the market, while fostering a more responsible and inclusive economy. Pakistan should encourage innovation, expand opportunities for small and medium enterprises (SMEs), and ensure that women can participate more fully in the workforce.The debate between Nobel laureates Joseph Stiglitz and the late Friedrich Hayek ultimately showed that no single ideology works for every society. For Pakistan, the best way forward is a thoughtful blend of both perspectives. By strengthening institutions, investing in social sectors, and creating transparent markets, Pakistan can build an environment where freedom, opportunity, and stability support each other.By focusing on building strong institutions, making investments in human capital, and fostering a more inclusive economy, Pakistan can move toward stability and sustainable growth. This will reduce the trade deficit, strengthen the country’s position in the global market, and help ensure a more balanced, resilient economy.Copyright Business Recorder, 2026

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