The FPCCI attributed the crisis to “crippling” energy costs, sky-high interest rates, and a “vicious cycle” of industrial shrinkage that risks further import dependency, while the Asian Development Bank (ADB) acknowledged a recovery but warned of persistent global risks.
Trade Deficit Widens Amid Industry Strains
The FPCCI’s stark assessment paints a dire picture of Pakistan’s export sector. Export-oriented industries are being pushed to the wall, rendering them entirely uncompetitive against regional peers,
said FPCCI President Atif Ikram Sheikh. The trade gap, now at $7.1 billion, reflects a stark imbalance: imports outpaced exports by a margin that the chamber blamed on the highest regional interest rates and exorbitant energy costs.
The FPCCI highlighted specific bottlenecks, including electricity tariffs inflated by massive capacity charges
and gas supply disruptions that eroded profit margins for exporters. Without a regionally competitive power tariff, key export sectors will continue to underperform,
Sheikh warned. The report also cited elevated petroleum prices, which triggered a multiplier effect on inland logistics, supply chains, and goods transportation,
inflating the cost of exportable goods before they reach ports.
ADB Acknowledges Recovery But Flags Global Risks
While the FPCCI focused on domestic challenges, the ADB’s report offered a more nuanced outlook. The bank noted that Pakistan’s economy had stabilised and begun to show stronger momentum
in FY2025, driven by tight macroeconomic policies and progress in economic reform.
However, it warned that downside risks were significant,
citing potential shocks from the Middle East conflict, which could weigh significantly on the economic outlook
by raising energy and fertilizer costs.
The ADB projected GDP growth of 3.5% in FY2026 and 4.5% in FY2027, but cautioned that inflation could rise to 6.4% in FY2026 and 6.5% in FY2027 due to surging oil prices and disrupted trade routes.
Policy Pressures and Industry Calls for Relief
The FPCCI’s demands for immediate rationalisation of electricity and gas tariffs
and a targeted relief on petroleum levies
underscore the sector’s plea for policy intervention. No industry can achieve a profit margin high enough to service such expensive loans,
Sheikh said, criticizing the central bank’s high policy rate as a barrier to credit growth. The chamber urged the government to devise a crisis-response strategy
to avert industrial closures and meet export targets.
The ADB’s analysis aligns with these concerns, noting that prudent macroeconomic policies and steadfast implementation of structural reforms
are essential to mitigate risks. It highlighted that economic activity in both industry and services will benefit from monetary easing,
but warned that global economic uncertainty
could exacerbate inflationary and fiscal pressures.
Historical Context and Fiscal Pressures
The trade deficit’s escalation reflects broader fiscal challenges.
These figures highlight the precarious balance the economy must maintain. The FPCCI argued that local manufacturing shrinks, and the economy inevitably pivots to expensive imports to meet domestic demand,
while the ADB stressed that sustained reform efforts are critical to preserve growth momentum and bolster fiscal and external buffers.
What Comes Next: Policy, Global Risks, and Industry Survival
The coming months will test Pakistan’s ability to reconcile industrial revitalization with global uncertainties. The FPCCI’s call for aggressive reduction in the policy rate
and tariff reforms faces a critical juncture as the government weighs its response to the trade deficit. Meanwhile, the ADB’s warnings about the Middle East conflict’s impact on energy prices and trade routes add another layer of complexity.
For exporters, the stakes are clear: without immediate relief on energy and logistics costs, the narrow profit margins
that sustain international orders risk collapse. For policymakers, the challenge lies in balancing short-term stabilisation with long-term reforms—a task the ADB describes as critical to enabling sustainable and inclusive growth.
