From Dawn · Khurram Husain · · 3m
Pakistan's external sector hits a turning point
A business journalist warns that Pakistan's trade deficit is growing faster than remittances can cover, repeating a cycle that has led to IMF bailouts before.
In brief
A business journalist warns that Pakistan's trade deficit is growing faster than remittances can cover, repeating a cycle that has led to IMF bailouts before. Pakistan's trade deficit is outpacing remittance growth since June, signalling the economy may have passed the peak before another downturn cycle, with no clear…
October remittances rise too small to matter
A slight increase in workers' remittances for October prompted questions, but the rise falls far short of what is needed to help plug Pakistan's trade deficit.
How Pakistan finances its trade gap
Remittances are traditionally how Pakistan's economy finances its trade deficits. The trend is cyclical and reveals itself when you take a twelve-month average of the total trade balance plus remittances.
The 2015 to 2018 cycle
From a low point in two thousand fifteen, the trade balance plus remittances rose slowly until it briefly turned positive around forty million dollars in November two thousand fifteen, then plunged below zero.
The July 2018 trough
The line bottomed out in July two thousand eighteen at around negative one point four five billion dollars.
The 2020 to 2022 cycle
From July two thousand eighteen, the line rose sharply until it hit a fresh peak in November two thousand twenty at around one hundred million dollars, then plunged again until July two thousand twenty-two at…
The 2025 peak and recent decline
The next peak was seven hundred eighty million dollars in March two thousand twenty-five.It stayed above zero for most months, but the line has been falling since March, reaching four hundred eighty million by September.
The cyclical pattern explained
Pakistan's external sector heaves and ebbs in cycles.The trade deficit grows as imports outstrip exports, but remittances cover the gap.
Borrowing and reserve depletion
As borrowing increases to cover the deficit, the government cannot fetch dollars in sufficient quantities. Reserves start to fall. Once that fall begins, it becomes very difficult to contain the situation.
The IMF bailout cycle
Eventually, reserves drop to a level that necessitates a return to the IMF for a bailout.
Growth rates since 2014
Exports have grown by one point four times since two thousand fourteen, imports by one point six times, remittances by two point seven times, and external obligations by four point six times.
The critical trend since June
At least since June, the trade deficit's growth has outstripped remittances. If this trend continues, it shows Pakistan has already passed the peak that historically defines the turning point from growth to bust.
“At least since June, the trade deficit's growth has outstripped remittances.”
Past governments' machinery story
In past periods, governments said their period had seen a large inflow of machinery that, once installed, would lead to export growth and reverse the trend. That story failed to pan out both times.
No clear plan from current government
There is little reason to believe the trend will turn around on its own. The current government's only story is urgency to see dramatic improvements in the country's credit rating by June two thousand twenty-seven.
Credit rating push raises questions
What is the credit rating improvement in preparation for? If it is more borrowing, then Pakistan is returning to the old cycle of external debt that has defined its economic history.
The turning point ahead
The trade deficit is only a few months away from outstripping remittances' ability to plug it. Without a plan to contain the deficit, Pakistan faces another downturn cycle and potential IMF intervention.
The one thing
Pakistan's trade deficit is outpacing remittance growth since June, signalling the economy may have passed the peak before another downturn cycle, with no clear government plan to reverse it.
