Rising consumption, declining exports: the C/A dilemma |
As Pakistan’s imports begin rising again, some analysts take this as a sign of industrial revival, arguing the resulting deficits will ultimately translate into greater productive capacity.
This interpretation is both incomplete and misleading. It overlooks Pakistan’s underlying structural realities: a shrinking manufacturing base, weak export performance, declining investment, low domestic savings, and, most critically, an import basket increasingly dominated by non-industrial goods.
In economies with strong institutions, competitive manufacturing, and rising productivity, temporary external deficits are typically offset by export growth and industrial expansion. Pakistan, however, diverges from this model. It has run persistent current account (C/A) deficits while industrial capacity has eroded and the export-to-GDP ratio has fallen to one of the lowest in the region, undermining the notion that higher imports necessarily translate into higher exports.
In fact, non-industrial imports have exceeded industrial imports in most years, driven by demographic pressures and rising dependence on imported food while foreign exchange inflows remain constrained.
This imbalance requires a structural policy response, and that is the restoration of export competitiveness.
Structural shifts in import composition:
Over the past two decades, Pakistan’s imports have grown at a compound annual growth rate of 7.3 percent, rising from USD 13.5 billion to USD 59 billion, while exports increased just 4.7 percent annually. This widening gap has created two interconnected pressures: an export base unable to generate sufficient foreign exchange and a persistent struggle to finance a rising import bill.
The trend is concerning as non-industrial imports have grown at more than twice the pace of industrial imports, including machinery critical for manufacturing. In 2025, for example, Pakistan imported USD 13 billion worth of non-industrial items, including........