Pakistan's economy demonstrates resilience as trade deficit shrinks significantly

• Monthly deficit also decreased by 17.7%, from $1.82 billion.
• Exports have exhibited robust monthly growth, increasing by 10.64%.
• October’s data highlights a significant decline in imports.

ISLAMABAD: In a notable change that demonstrates the economy's resilience, Pakistan's trade deficit shrank significantly, falling 31.1% year-on-year in October 2024.

The deficit shrank to $1.5 billion, a significant drop from $2.17 billion in the same month in 2023-24, The News reported on Saturday. 

This pattern indicates that the country's external financial situation is improving, especially with regard to its current account deficit (CAD), which has long been a source of economic weakness.

The monthly deficit also decreased by 17.7%, from $1.82 billion in September, according to data from the Pakistan Bureau of Statistics (PBS). 

Such gains offer some hope in the face of a difficult economic environment, with the cumulative trade deficit for the first four months of financial year 2024–25 already at $6.97 billion, a 5.6% decrease from the $7.39 billion recorded in the same period in 2023-24.

There are several factors contributing to this contraction. On the one hand, strict government policies intended to reduce foreign exchange constraints have caused a considerable softening of import demand. 

In addition to reducing outflows, these limitations have put a great deal of pressure on sectors of the economy that depend on imports.

Conversely, exports have exhibited robust growth, increasing by 10.64% in October 2024 to reach $2.975 billion. This marks the 14th consecutive month of rising exports, providing a much-needed counterbalance to the shrinking trade deficit. 

Year-on-year, exports have shown consistent improvement since September 2023, with growth rates fluctuating between 1.67% and 29.27% in the months leading up to October 2024. When comparing October 2024 to September, exports increased by 4.9%, while imports decreased by 3.9%.

October’s data highlights a significant decline in imports, which fell by 8.02% to $4.47 billion. This marks the first month since February 2024 that imports have decreased, contrasting sharply with previous months where imports surged, notably rising by 63.2% in April. The government’s efforts to stabilise the rupee and address the CAD have played a pivotal role in this transformation.

For the July-October 2024-25 period, cumulative exports climbed 13.45% to $10.88 billion, while imports rose by a more modest 5.17% to $17.85 billion, resulting in a trade deficit of $6.97 billion for these four months — down from $7.387 billion during the same period last fiscal year.

Additionally, the PBS reported on trade in services for first quarter (July-September), revealing a services trade deficit. Pakistan imported $2.6bn worth of services while exporting $1.9bn, leading to a deficit of $698.9 million, an improvement from $893.3 million in the same timeframe last year.

In September 2024 alone, services exports totalled $657 million, while imports amounted to $882 million, creating a deficit of $225 million. This represents a 20.5% reduction compared to August, where the deficit was $283.2 million.

On a year-on-year basis, September 2024 services exports rose by 17%, while imports decreased by 4%. The trend highlights a growing efficiency in service exports, which is critical for diversifying Pakistan’s economic portfolio.