Pakistan’s trade deficit surged to $39.47 billion in FY26, the highest in four years, highlighting the country’s deep structural dependence on imported energy. The petroleum group import bill alone reached $16.86bn, up from $15.94bn a year earlier, while crude oil imports jumped 32.1 per cent to $7.17bn. These figures underscore the urgent need to shift from imported fossil fuels to affordable green energy.
Middle East conflicts and flawed energy policy have repeatedly forced Pakistan into last-minute purchases of oil and LNG at elevated spot prices. Rising shipping, insurance and geopolitical risk premiums have further inflated the country’s import bill, making energy the single largest contributor to the external imbalance.
Pakistan cannot continue responding to every external shock with import contractions. The sustainable solution is to permanently reduce dependence on imported fuel by accelerating investment in solar power, battery storage and electric mobility.
The government should immediately announce zero customs duty and zero sales tax for five years on solar panels, inverters, lithium-ion and sodium-ion batteries, e-bikes and small electric vehicles. Such a policy would lower energy costs, reduce petroleum imports, improve export competitiveness and stimulate domestic manufacturing through joint ventures and local investment.
Accelerating investment in solar power, battery storage and electric mobility is a sustainable solution
According to the Pakistan Bureau of Statistics, petroleum imports reached nearly $1.91bn in June 2026, an increase of 45.5pc over June 2025. Petroleum products consistently account for 20-28pc of Pakistan’s total imports, making them the most volatile component of the trade deficit. Renewed tensions in the Middle East have again pushed Brent crude above $88 per barrel at the time of writing this article, exposing Pakistan to another round of imported inflation and external pressure.
Unlike many imports, petroleum demand is difficult to reduce in the short term. Industry, transport, agriculture and electricity generation all depend heavily on imported fuels. Whenever international oil prices rise, Pakistan’s import bill immediately expands, putting pressure on foreign exchange reserves and the rupee.
Pakistan, however, possesses one of the world’s highest solar irradiation levels. Yet solar adoption remains below potential because duties and taxes on inverters and batteries significantly increase installation costs. Removing these barriers would accelerate investment in utility-scale, commercial and residential solar systems while enabling reliable round-the-clock electricity through battery storage.
Duty-free solar technology would directly benefit export-oriented industries such as textiles, garments, leather, sports goods and engineering products. High electricity costs remain one of the biggest disadvantages faced by Pakistani exporters compared with competitors in Bangladesh, Vietnam and Cambodia. Affordable solar-plus-storage systems would lower production costs, improve reliability and enhance international competitiveness.
Battery storage deserves equal attention. While lithium-ion batteries dominate today’s market, sodium-ion technology offers an attractive long-term alternative because sodium is cheaper, more abundant and less vulnerable to geopolitical supply disruptions. Early incentives for both technologies would help Pakistan diversify future energy storage options.
Transport is another major consumer of imported petroleum. Promoting electric two- and three-wheelers through duty exemptions can significantly reduce fuel consumption, improve urban air quality and encourage local assembly and manufacturing. Combined with solar-powered charging infrastructure, electric mobility can substantially reduce oil imports while creating new employment opportunities.
Lower energy costs are not only essential for reducing imports; they are equally important for increasing exports. Pakistan’s export-to-GDP ratio remains around 8-9pc, well below successful regional economies. Affordable and reliable electricity is one of the few factors the government can influence directly to improve industrial competitiveness.
Over time, Pakistan can also develop a domestic green technology industry. Local assembly of solar equipment, batteries and electric vehicles can gradually evolve into manufacturing, creating skilled employment while diversifying the country’s export base beyond traditional sectors.
To maximise benefits, duty exemptions should be supported by complementary reforms. Strict quality standards must prevent the import of substandard equipment. After an initial period of rapid deployment, gradually increasing local-content requirements should encourage domestic manuacturing.
The State Bank of Pakistan should expand concessional green financing to help industries and households invest in renewable energy. Net-metering and wheeling regulations should also be simplified to encourage private investment, while technical training programmes should prepare a skilled workforce for solar installation, battery maintenance and EV servicing.
Although the government may initially lose some customs revenue, these losses will be outweighed by reduced petroleum imports, higher exports, increased industrial activity and lower future energy subsidies.
Pakistan’s recurring balance-of-payments crises are fundamentally energy crises. Every phase of economic growth raises energy demand, increases petroleum imports, widens the trade deficit and eventually forces economic contraction. Breaking this cycle requires structural reform rather than temporary import controls.
Making solar panels, inverters, lithium-ion and sodium-ion batteries, e-bikes and electric vehicles duty-free offers one of the highest-return policy interventions available today. It would permanently reduce the country’s largest import category, lower production costs for exporters and lay the foundation for a modern green manufacturing industry.
The $39.47bn trade deficit cannot be eliminated through a single policy measure. However, reducing dependence on imported energy is perhaps the most effective long-term strategy available. Pakistan has abundant sunshine, a large domestic market and growing energy demand. With clear policies and timely implementation, green technology can transform these advantages into stronger exports, lower imports and sustainable economic growth.
The writer is a former Vice President of KCCI and an international trade expert.
Published in Dawn, The Business and Finance Weekly, July 27th, 2026