Rising energy costs expand trade deficit

Pakistan's trade deficit widened considerably in July 2026 as increasing energy prices pushed the country's import bill higher, despite continued growth

Pakistan’s trade deficit widened considerably in July 2026 as increasing energy prices pushed the country’s import bill higher, despite continued growth in exports. According to data released by the Pakistan Bureau of Statistics (PBS), the trade gap reached $3.95 billion, representing an increase of more than 25 percent compared with $3.15 billion recorded in July 2025.

The official figures revealed that imports increased by nearly 18 percent on a year-on-year basis, while exports also recorded an encouraging rise of almost 10 percent during the same period. Although export earnings improved, they were insufficient to offset the rapid increase in import payments.

Saad Hanif, Head of Research at Ismail Iqbal Securities, said the latest figures indicate that Pakistan’s demand for imported goods remains strong. According to him, economic activity has continued to recover, resulting in higher import volumes across several sectors. He noted that the country’s reliance on imported products has remained significant despite efforts to improve the trade balance.

Import payments climbed to $6.89 billion in July, compared with $5.84 billion during the same month last year. Hanif explained that the main reason behind the sharp increase was the rise in global energy prices, particularly due to ongoing tensions in the Middle East. He said petroleum products and Re-gasified Liquefied Natural Gas (RLNG) became around 40 to 50 percent more expensive than they were a year earlier. Since Pakistan depends heavily on imported fuel, energy purchases typically account for between one-fifth and one-quarter of the country’s total import expenditure. In addition, higher imports of automobiles, industrial equipment and agricultural machinery also contributed to the increase in the import bill.

Exports, however, showed positive momentum. Pakistan earned $2.94 billion from exports in July, compared with $2.68 billion in the corresponding month of 2025. Hanif attributed this improvement mainly to stronger food exports, especially rice, which regained momentum in international markets. He also highlighted that the textile industry continues to be Pakistan’s largest export sector, contributing more than half of the country’s total export earnings. Textile exports remained stable throughout the previous fiscal year, helping maintain overall export performance.

When compared with the previous month, Pakistan’s trade position showed some improvement. The trade deficit had reached $4.66 billion in June 2026 but narrowed by more than 15 percent in July. This improvement was largely driven by a remarkable 31 percent monthly increase in exports, one of the strongest monthly gains recorded in recent years, while import payments remained almost unchanged. The Ministry of Finance described the development as a positive beginning to the new fiscal year and linked it to government measures aimed at supporting exports, improving industrial productivity and reducing the cost of doing business.

Meanwhile, Prime Minister Shehbaz Sharif has directed authorities to accelerate the privatisation of state-owned electricity distribution companies by attracting reputable international investors. During a review meeting in Islamabad, he instructed the Privatisation Commission to complete its restructuring within one month and ensure that the entire process follows international standards, transparent procedures and fixed timelines. He also stressed that consumer interests should remain fully protected throughout the privatisation process.

The prime minister welcomed the positive response received during recent investor roadshows held in Pakistan, Turkey, Saudi Arabia and China for the first-phase privatisation of Gepco, Fesco and Iesco. He further instructed the Privatisation Commission to recruit qualified professionals in finance, law and information technology to strengthen its institutional capacity. In addition, he ordered the establishment of an effective grievance mechanism to address consumer complaints after the companies are transferred to private ownership. The government expects bidding for the three electricity distribution companies to take place between October and December 2026, with the aim of attracting investment from Gulf and other Asian markets.