Pakistan’s trade deficit with Middle East hits $10.5 billion over fuel imports

Pakistan’s economic woes continue as the country’s trade deficit with the Middle East has widened by 10.11 percent to reach a staggering $10.502 billion in the first nine months of fiscal year (FY) 2024-25. According to data compiled by the State Bank of Pakistan (SBP), Pakistan’s trade deficit with the Middle East has worsened with the sharp rise in the import of petroleum products, accompanied by paltry export growth.

The surge in petroleum consumption has reportedly caused concern to lawmakers in Islamabad, as high imports hurt Pakistan’s current account balance. Despite authorities raising the petroleum development levy significantly, domestic consumption remains high, which positively impacts the demand for imported fuel.

As per reports, crude oil imports rose by a whopping 14.61 percent during the first eight months of FY 2024-25 compared to the same period in FY 2023-24. The demand for petroleum shrank in the previous FY because of a surge in domestic prices. Reports indicate that this allowed for Pakistan’s trade balance with the Middle East to improve by 20.47 percent in FY 2023-24.

Compared to import growth, exports have grown sluggish, reportedly increasing by 4.47 percent to settle at $2.381 billion in the first nine months of FY 2024-25.

Analysts have outlined how export growth this FY to the region has been poor, comparing it to the whopping 35.23 percent export growth Pakistan was able to achieve in FY 2023-24.

Lawmakers intend to plug the trade gap and recently inked an agreement with the Gulf Cooperation Council (GCC) to boost commercial activities. Details from reports indicate that the agreement will serve to remove barriers to free trade.

This could prove to be beneficial for exporters as Pakistani goods are sought after in the Middle East. One of the primary factors driving demand for Pakistani goods is the large expatriate community that lives in countries such as Saudi Arabia, Qatar and the UAE.

Experts believe that if domestic fuel demand remains high, the federal government could attempt to raise the levy to curb excessive imports. Alternatively, Pakistan could consider the exploration and extraction of its own petroleum, which may significantly improve the cash-strapped economy’s balance of trade.

However, in the short run, the government can only rely on measures such as import controls and higher taxation levels to ensure that the trade deficit with the Middle East does not grow sizably.