Pakistan’s Export Challenges: Dealing With Economic Instability and Trade Imbalances

Exports play a critical role in the economic and financial stability of any country, especially for the countries where other economic indicators are not enough to guarantee the economic health. Negative trade balance can have a significant effect on the entire economy by putting pressure on exchange rates and increasing the import bills. Therefore, each country struggles to increase its exports to beef up the reserves as well as to boost the local business owners. Pakistan’s export challenges are vast ranging from economic instability to trade imbalances. Let’s discuss them in this article.

The Ripple Effect of Pakistan’s Export Challenges and Declining Economy  

In recent years, Pakistan’s export challenges have increased with its macroeconomic indicators making the economic growth nosing down. The declining exports created a major trouble for the country where some economic and financial exports started predicting the default on even sovereign debts. The negative trade balance creates enormous pressure on exchange rates, foreign currency reserves in particular and economic stability in general. 

Overview of Pakistan’s Trade Balance

During FY23, Pakistan’s exports were recorded at 27.724 billion USD compared to 31.782 billion USD in FY 22 ¹. This shows a 12.77% annual decline in the country’s exports. This may be noted that this decline is not attributed to any particular sector or commodity group. All the commodity groups of Pakistan’s exports stood at negative numbers. Some experts are of the opinion that this decline is the result of both global reduction in demand for goods & services as well as domestic macroeconomic indicators and business environment. 

Pakistan’s Declining Imports and Shifting Trends

During FY23, Pakistan’s imports have also declined. The decline in imports is 31.12% compared to the decline in exports of 12.77%. The total imports in FY22 were US$ 80.137 billion which reduced to US$ 55.198 billion in FY23. This reduction was largely driven by tighter regulations from the central bank and government aimed at curbing imports to address the trade deficit. As a result, the trade deficit in FY22 was US$48.355 billion which was reduced to US $27.474 billion in FY23 recording an almost 43.2% decline in trade deficit. 

However, Pakistan’s export challenges slightly improved in 2024. For the period of Jul-Dec 2024, both exports and imports have increased compared to the same period previous year. For Jul-Dec 2023, the total exports were US$ 14.985 billion which increased to US$ 16.561 billion for Jul-Dec 2024. The imports have also increased from US$ 26.137 billion for Jul-Dec 2023 to US$ 27.733 billion for Jul-Dec 2024. In percentage terms, the exports have increased by 10.52% while the imports have increased by 6.11% only but it has increased the trade deficit by 0.18%. ²

Related: Agriculture credit paradox: why Pakistan’s largest sector gets the smallest slice of banking finance?

Pakistan’s Major Export: Opportunities and Risks in the Textile Sector

Pakistan’s exports are heavily reliant on three major categories: textiles, food, and petroleum products. Among these, textiles dominate with a 60% share in the country’s total export commodities. Key products within the textile sector include knitwear, apparel, bedware, cotton fabrics, and towels. 

This dependence provides both an opportunity to leverage the sector’s performance for growth in exports but at the same time it imposes a threat too. Due to technological advancements and competitive markets, the share of textile could drop bringing the trade deficit. In addition, higher financing rates and energy shortages also bring shocks to the industry occasionally. 

Therefore, diversification should be sought to increase the spectrum of export commodity groups. The textile sector also contributes to 8.5% in GDP and employs around 38% of the labor force. ³ 

The Food Group: A Key Opportunity for Export Growth

The food group holds a significant position in Pakistan’s exports, with its main categories being rice, fruits and vegetables, and meat. Rice dominates this group, contributing 42% of food group exports. Other key contributors include fish (9.88%), meat (8.5%), and fruits (5.64%). With huge amounts of fruits and vegetables produced each year, solutions should be developed and provided to increase the exports of fruits and vegetables. 

The meat export destinations include gulf countries. Pakistan is also planning its meat exports to other countries. For example, the Malaysian government has approved four meat exporting companies of Pakistan. Such initiatives also pave the way for Pakistan to access the global Halal market which is estimated to have the volume of $4.5 trillions by 2030. ⁴

Being a country with a major share of agriculture in its GDP, Pakistan should focus more on increasing the share of food group commodities in the total exports. The current share of the food commodity group in total exports hover around 13%. 

Related: How digital supply chain finance is driving economic growth in Pakistan?

Top Export Destinations 

The United States remains the major export destination followed by China, UK, Germany, UAE and Netherlands. The United States has the highest share in exports; more than 18% followed by China, UK and European countries. For China, the share of exports has decreased from 10.02% in FY22 to 8.02% in FY23. On a quarterly basis too, the share of exports to China has decreased. In Jul-Sep 2023, it was 10.61% whereas in Jul-Sep 2024 it has dropped to 7.07%. 

For the same period, the share of UK, Germany and U.A.E in total exports of Pakistan has increased. For the period Jul-Sep 2024, the UK was the second top export destination instead of China. 

One of the major Pakistan’s export challenges are the neighboring countries. Pakistan has been unable to increase its export of goods and services to its neighboring countries. For example, the share of exports to Bangladesh and Afghanistan during Jul-Sep 2024 was only 2.62% and 4.54% only while Iran is not in even the top 20 export destinations of Pakistan. 

Export vs Import Countries

The U.S. is the top export destination whereas China is the country where most of the imports of Pakistan come. Pakistan exports around 18% of its total exports to the U.S and imports only around 3% from U.S. This means that Pakistan is earning more from selling the goods/services to the U.S. than spending on imports from the U.S. This is the opposite for China; more than 27% of imports are from China whereas only 7% of total export goods/services are exported to China. Other countries where major imports of Pakistan come are U.A.E, Saudi Arabia, Qatar, Indonesia, Japan, and Iran. 

Strategies to Enhance Trade Relations

Pakistan should enhance its trade relations with these countries and take steps so that the domestic businesses could export goods and services to these countries. For instance, Iran stands at number 8 on the import list of Pakistan but it is not even among 20 export destinations. Similar is the case with Qatar from where 7.6% of the imports come and it is the fourth country in terms of imports, but it is not among 20 top export destinations. 

On the other hand, for example, the UK is the second or third major export destination whereas in terms of imports, it is at 19th place. For Jul-Sep 2024 period, Pakistan earned more than 161 billion rupees by exporting goods/services to the UK and spent only 37 billion rupees in the same period as payment for goods/services imported from the UK. In other words, Pakistan has benefited around 124 billion rupees by its trade with the UK for Jul-Sep 2024 period.

Export to GDP Ratio

The below map shows the export to GDP ratio for selected countries. During 2023, Pakistan’s export to GDP ratio was 10.47% which is lower than that of other countries in the region. For example, India has more than double, with 22.45%, the ratio of export to GDP, than Pakistan. Similarly, the same ratio for Afghanistan, Iran, and Bangladesh is 16.78%, 19.80% and 12.88%. 

Key Takeaways

• Pakistan needs to diversify its export commodities keeping in view the global demand and technological advancements at global level and  financial and economic conditions at domestic level. For example, the concept of cold storage facilities could be used more to store the fruits and vegetables for onward exports.
• Pakistan should increase its trade relations in terms of exports with friendly nations. Currently, most of the exports are going to the U.S and Europe instead of neighboring countries.  
• Pakistan needs to maintain a balance with countries in terms of trade. Trade should flow on both sides; Pakistan should export to the countries where it imports from.

Sources

1. https://www.pbs.gov.pk/sites/default/files/external_trade/Annual_Analytical_Report_on_External_Trade_Statistics_of_Pakistan_FY2023.pdf ↩︎
2. https://www.pbs.gov.pk/sites/default/files/external_trade/monthly_external_trade/2024/December/Summary_December_2024.pdf ↩︎
3. https://www.theigc.org/collections/phase-i-research-garments-industry-pakistan#:~:text=The%20textile%20industry%20plays%20a,38%25%20of%20the%20country’s%20workforce. ↩︎
4. https://halalworldinstitute.org/en/news/institute-news/item/119-halal-food-market,-size,-global-forecast-2024-a-$4,569-69-billion-industry-by-2030-key-trends,-share,-growth,-insight,-impact-of-inflation,-company-analysis.html ↩︎