The State Bank’s latest 4MFY26 data has rung major alarm bells. The country’s current account deficit (CAD) has ballooned to $733 million, a staggering 256 per cent increase over the same period last year.
Pakistan’s imports of goods and services have jumped by 15pc and 12pc respectively, while foreign direct investment has declined by 26pc. The surge in CAD is not due to industrial investment growth; it is an economic statistic driven by stagnant exports and a deficit in investor trust.
At first glance, the jump in imports may be mistaken for some industrial investment recovery. But scratch beneath the surface, and a more worrying story emerges — one of profligate “political” import-decisions, consumption-driven excess, and a complacent trade policy, failing to lean into exports as the cure for our external woes.
A clear red flag is the composition of imports. Significant portions of the import surge seem to be driven by consumption. Petroleum and transport, including electric buses and cars, are consumption-driven and not conducive to generating income in dollars.
Capital goods can expand productive capacity and support exports. Consumer goods — particularly those of a discretionary nature — do not. They drain foreign exchange without generating future earnings.
Pakistan requires disciplined import management, not a laissez-faire approach, with a need to shift to the ‘import on merit’ model that preserves external stability
The flood of consumer goods reflects a pattern inconsistent with external prudence. Sugar imports at costly prices failed to correct domestic prices and rather only supported jacking up domestic sugar prices, a pure political decision rather than an economic justification. Projects such as subsidised electric buses raise legitimate concerns regarding cost recovery and fiscal sustainability within their operational life.
Beyond that, Pakistan’s reserves, though slightly improved, remain fragile. $14.6 billion offer limited room for manoeuvre when CAD pressures were rising and external debt repayments remained substantial. Financing a widening deficit through short-term flows is a perilous game. If global liquidity shifts or remittances dip, the country’s ability to defend the rupee and maintain reserve adequacy could be compromised.
In this context, the current trajectory is not sound. We are importing more — not only for investment but also for consumption and political signalling — while the export engine remains stuttering.
A course correction is imperative; Pakistan requires disciplined import management, not the laissez-faire approach. Import permits, like Singapore uses to monitor and regulate domestic demand patterns, can help align import decisions with national priorities. Such controls need not be protectionist; they must be strategic, transparent and merit-based. This shift from ‘import on will’ to ‘import on merit’ is essential if Pakistan is to preserve external stability.
On the other side of the equation, export policy requires urgent liberalisation, particularly for value addition. Our agricultural and agro-processing potential remains underutilised. Export bans paralyse the true potential of commodities such as pulses, jaggery, or wheat flour and often create domestic distortions while discouraging growers and processors.
The focus should instead be on value addition — for instance, exporting reprocessed, packaged pulses rather than raw produce. Such products fetch premium prices, support Pakistani brands, and contribute meaningfully to foreign exchange earnings.
Industries that convert raw materials into exportable finished goods should be incentivised through lower tax burdens and export refinancing rather than simple commodities like rice. Small and medium enterprises, in particular, can play a larger role in global value chains if provided with predictable policy support.
A more transformative reform would be to link import privileges to export performance. Allowing imports against verified exports would create a self-reinforcing discipline. Exporters would gain priority access to foreign exchange, and speculative or comfort-driven imports would be curtailed. This mechanism could help align the country’s external account with its real earning capacity.
The main obstacle is not technical capacity; it is the political economy of trade. Large import lobbies wield disproportionate influence. Overcoming this will require political will and institutional strengthening. A dedicated, data-driven cell within the State Bank and the Ministry of Commerce should evaluate import applications through a transparent digital portal. Trade policy must shift from reactive firefighting to proactive management.
The current account deficit of $733m is not a technical glitch — it is a cautionary signal that the economy is heating up, not through healthy investments but through elevated consumption and politically influenced imports.
There is a way forward by revisiting import policy, imposing smart quotas, and aligning import permits with export performance. Pakistan can transform its external imbalance from a liability into an opportunity.
Liberalising and incentivising exports, especially value-added products, can provide the engine of export-led growth we need to finance essential imports and debt servicing. By anchoring imports to export receipts, the government can reward exporters by offering tax incentives.
In short, our economic strategy must shift from ‘import at will’ to ‘import with discipline – export with ambition’. Only then can Pakistan reconcile its desire for growth with the imperative of external stability.
Pakistan cannot pursue growth by consuming the foreign exchange it has borrowed. If we don’t act decisively, the CAD of $733m may just be the start of a more dangerous drift — not just in our balance sheets, but in our long-term economic sovereignty.
The writer is a former vice president of KCCI and a commodities and international trade expert
Published in Dawn, The Business and Finance Weekly, December 8th, 2025
