Pakistan’s trade deficit with its neighbouring countries widened sharply in the first five months of the 2025–26 fiscal year, rising by nearly 39 percent to $6.22 billion, according to official data. The growing gap reflects a steep fall in exports combined with a continued surge in imports from regional partners, highlighting persistent structural weaknesses in the country’s external trade.

During the July–November period, Pakistan’s exports to neighbouring countries declined significantly. Shipments to China, Pakistan’s largest regional trading partner, fell by about 7 percent to just under $1 billion. Exports to Afghanistan collapsed dramatically after trade with Kabul was suspended in October, dropping by more than 94 percent to a little over $200 million. Negative export growth was also recorded in trade with Bangladesh and Sri Lanka, further eroding regional export earnings.

Exports to India showed a percentage increase during the period, but the absolute value remained marginal and insufficient to offset losses elsewhere. Overall, Pakistan’s regional exports failed to keep pace with imports, deepening the trade imbalance. On the import side, Pakistan’s purchases from neighbouring countries increased by more than 22 percent to $7.86 billion. Imports from China dominated regional trade, rising by nearly 23 percent and accounting for the overwhelming share of Pakistan’s imports from its neighbours. In contrast, imports from India declined by around 19 percent, though the overall impact on the trade balance remained limited.

The widening deficit continues a troubling trend. In the previous fiscal year, Pakistan’s trade gap with neighbouring countries had already expanded by over 29 percent, underscoring long-standing issues such as weak export competitiveness, limited value-added production, and heavy reliance on imported goods.

Economists warn that the growing regional trade imbalance adds pressure to Pakistan’s foreign exchange reserves and currency stability. They argue that without meaningful export diversification, improved regional trade access, and domestic industrial reforms, Pakistan’s trade deficit with neighbouring countries is likely to remain a drag on the broader economy.