By Farooq Awan

Pakistan’s trade deficit widened to $20.5 billion during July-January FY26 as imports increased during the period, according to the Monthly Economic Update & Outlook February 2026 released by the Ministry of Finance.

The expansion in the trade gap reflects higher import payments compared to export earnings during the first seven months of the fiscal year. The report indicates that while exports showed moderate performance, imports grew at a faster pace, resulting in a broader merchandise trade imbalance.

The increase in imports during July-January FY26 contributed directly to the widening deficit. Rising import volumes suggest stronger domestic demand for goods, including industrial inputs and other essential products. The higher import bill added pressure on the external trade balance during the review period.

On the export side, merchandise exports recorded measured growth but were insufficient to fully offset the increase in imports. Although certain export segments posted gains, overall export growth remained lower relative to import expansion, leading to a cumulative trade deficit of $20.5 billion.

The report presents the trade data within the broader external sector framework. While the merchandise trade deficit widened, other components of the external account, such as remittances and services exports, provided support to the balance of payments during the same period.

The widening trade gap underscores the continued reliance on imports to meet domestic consumption and production requirements. The difference between export receipts and import payments during July-January FY26 illustrates the structural imbalance in goods trade.

Despite the increase in the trade deficit, the report notes that external inflows through remittances and foreign investment contributed to maintaining overall stability in the external sector. However, the merchandise trade performance remained a key factor shaping the cumulative current account position during the fiscal year.

Overall, the trade figures highlight the ongoing pressure on the merchandise account during FY26. The widening deficit reflects higher import demand alongside moderate export growth, shaping the external trade profile of the economy during the review period.

Credit: INP-WealthPk