THE trend is unmistakable. The sharp fall of 20.4pc in Pakistan’s export shipments last month underscores that the slump stems from structural factors and should no longer be dismissed as a temporary setback. Trade data shows that December marks the fifth consecutive monthly export decline — and the sharpest one — in the first half of the present fiscal. The sustained export contraction heightens the risks to the nation’s external sector recovery as growing imports threaten to erode the gains achieved through demand compression over the past two years. Imports crossing the $6bn mark last month for the first time during the current fiscal year signal that a policy shift towards trade normalisation and liberalisation have revived import demand faster than anticipated. In absolute terms, the $118m boost in imports is quite modest given the country’s size and consumption trends. But when juxtaposed with the sharp contraction in exports, it pushes the monthly trade deficit up by 25pc to $3.7bn. The six-month cumulative picture of trade imbalance is even more worrisome. The $19.2bn trade deficit posted in the July-December period is 35pc higher than last year.

Pakistan’s poor export performance has always remained the weakest link in its external sector stability chain. It has become even more pronounced in recent years amid drying foreign official and private flows, which successive governments used to prop up the feeble balance-of-payments position. The State Bank may use strong remittances and its dollar purchases to finance the trade gap and boost reserves for as long as it can. But reliance on this strategy to offset a structurally widening trade gap has its own risks as it leaves the external account vulnerable to geopolitical shocks and host-country labour market changes. Moreover, sustained intervention to build reserves tightens domestic liquidity and fuels exchange rate pressures. The deteriorating export performance is not a threat only for external sector stability; it also forces policymakers to suppress growth to ward off yet another balance-of-payments crisis. If anything, the latest trade numbers expose a disconnect between stabilisation and sustainability. The economy has moved from crisis management, but has yet to transition to an export-led growth path. Without energy, industrial and trade reforms to improve export competitiveness, the current economic recovery will remain fragile and growth subdued.

Published in Dawn, January 5th, 2026