Farooq Awan

Pakistan’s external sector showed a combination of declining goods exports and expanding services receipts during the first five months of FY 2025-26, according to the Monthly Development Update – December 2025 released by the Ministry of Planning, Development and Special Initiatives.

The Ministry’s report states that merchandise exports fell by 3.2 percent during July–November FY26, declining from $13.2 billion in the same period last year to $12.8 billion. The contraction, it notes, was primarily driven by a sharp drop in the food group, particularly rice exports, which fell by 44 percent. According to the document, this decline in rice shipments significantly impacted overall export performance during the review period.

In contrast to goods exports, the services sector—led by information technology—recorded strong growth. IT exports increased by 19 percent, rising to $1.8 billion during the first five months of the fiscal year. The Ministry highlights that technology services continued to expand, becoming a major contributor to services-sector earnings and providing an important buffer for the external sector.

Imports increased due to rising industrial activity and higher demand for capital goods. The report notes that improved industrial output contributed to greater reliance on imported raw materials, machinery and intermediate goods. It adds that the government’s liberalised trade measures also encouraged inflows of capital equipment and industrial inputs.

The update states that despite pressures on the trade balance, remittances continued to support the external account. Workers’ remittances increased by 9.3 percent during July–November FY26, reaching $16.1 billion. According to the Ministry, remittances remained a vital source of foreign exchange inflows and helped stabilise the external position during the review period.

The report further highlights that the divergence between goods exports and services exports shaped the broader external sector outlook. Goods exports faced supply-side challenges and reduced demand for some commodities, while IT-driven services provided steady growth. The Ministry notes that this combination produced a mixed external sector performance for the first five months of the fiscal year.

The document also states that financial markets remained stable, supported by foreign exchange inflows and improved sentiment linked to the services sector’s performance. According to the report, gains in market indicators reflected confidence in external inflows and stability in foreign exchange reserves.

Overall, the Ministry of Planning concludes that Pakistan’s external sector performance during July–November FY26 was marked by weaker merchandise exports but stronger services receipts, supported by continuing growth in IT exports and sustained remittance inflows.

Credit: INP-WealthPk