Import surge without growth: return of an old problem, minus the upside
Pakistan's imports are inching up again. Excluding the commodity supercycle year (FY22), imports are nearing their highest historical levels. This is not the first time the country has experienced such an upward cycle.
However, what sets the current trend apart is that the rise in imports is not accompanied by robust GDP growth. The economy is barely expanding at 2–2.5 percent in FY25, yet import volumes are approaching levels seen in FY18, when GDP growth was above 5 percent.
While imports remain high in absolute dollar terms, they represent 14.1 percent of GDP, which is below the 17 percent level recorded in FY18.
The concern lies not in the ratio itself, but in the underlying reality: nominal GDP may be growing, but Pakistan's capacity to finance its external obligations is not keeping pace. The demand for foreign exchange is rising yet reserves remain stagnant. External debt and foreign direct investment have been flatlined, further constraining financing ability.
The central challenge is how to transition from stabilization to a growth trajectory, a shift that cannot happen without higher external inflows. Over the past two years, the macroeconomic model has centered on fiscal and monetary consolidation, and this is likely to continue through FY26. As a result, the economy appears stuck in a low-growth trap.
Based on shipment data, Pakistan's imports stood at $53.4 billion in 11MFY25 compared to $55 billion in 11MFY18. On a payment basis, imports have already surpassed FY18 levels. Yet while GDP grew over 6 percent in FY18, growth in FY25 is projected at below 3 percent. Achieving 6 percent growth again would necessitate a much higher import bill. If the imports-to-GDP ratio were to match FY18, absolute imports would need to exceed $70 billion, a figure that is currently unsustainable.
This analysis deliberately excludes FY22, which was an outlier year due to the global commodity supercycle. Since then, global commodity prices, especially agriculture and food commodities, have softened but remain elevated compared to pre-Covid levels. A similar trend holds for industrial metals. Prices are now adjusting to a new, higher baseline.
For example, average palm oil prices in 11MFY25 are 46 percent higher than in FY18. Pakistan's palm oil consumption continues to grow organically: quantity-wise, imports are up 16 percent since FY18. Yet the import bill has surged 69 percent. Palm oil now accounts for 6 percent of total imports, compared to a 10-year average of around 4 percent.
A similar story is visible in iron and steel. Although global prices remain elevated, import volumes have declined sharply, by 44 percent compared to FY18. The auto sector paints an even starker picture, with dollar imports in FY25 at just 60 percent of FY18 levels.
The key takeaway is that consumption of so-called essentials—such as palm oil, tea, and petroleum—is growing due to population growth and a demographic profile skewed toward youth. These goods, particularly food, are rarely taxed to curb demand. Yet their rising import share is effectively crowding out non-essential or productive imports, such as industrial machinery and vehicles. In those sectors, higher taxes and SBP's import restrictions have suppressed demand.
Industrial data bears this out. Despite a modest macroeconomic recovery, domestic cement sales are at an eight-year low, two-wheeler sales have fallen below FY17 levels, and car sales remain deeply depressed. While some import categories, such as mobile phones and solar panels, have shown growth, these gains have come at the expense of broader industrial machinery imports.
This import pattern does not support productivity enhancement or employment generation. Instead, it reflects an economy increasingly tilted toward consumption, already among the highest in the region. The only bright spot in the external account is remittances. But even these primarily fuel consumption, exacerbating import demand. Economists often refer to this as a form of Dutch disease.
The macroeconomic challenge is further compounded by rising geopolitical tensions in the Middle East, which threaten to keep oil and other commodity prices elevated. At current price levels, the economy cannot afford to grow beyond 3 percent without further straining the external account.
The going is getting tough. And for the tough to get going, at least economically, the interest rate floor must be redefined. Historically, discount rates of 6–8 percent were enough to trigger growth. Today, it appears that rates will bottom out closer to 10–12 percent. Breaking this pattern will require a fundamental shift: significantly higher levels of external financing, through both debt and investment.
Copyright Business Recorder, 2025
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Business Recorder
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Import surge without growth: return of an old problem, minus the upside
Pakistan's imports are inching up again. Excluding the commodity supercycle year (FY22), imports are nearing their highest historical levels. This is not the first time the country has experienced such an upward cycle. However, what sets the current trend apart is that the rise in imports is not accompanied by robust GDP growth. The economy is barely expanding at 2–2.5 percent in FY25, yet import volumes are approaching levels seen in FY18, when GDP growth was above 5 percent. While imports remain high in absolute dollar terms, they represent 14.1 percent of GDP, which is below the 17 percent level recorded in FY18. The concern lies not in the ratio itself, but in the underlying reality: nominal GDP may be growing, but Pakistan's capacity to finance its external obligations is not keeping pace. The demand for foreign exchange is rising yet reserves remain stagnant. External debt and foreign direct investment have been flatlined, further constraining financing ability. The central challenge is how to transition from stabilization to a growth trajectory, a shift that cannot happen without higher external inflows. Over the past two years, the macroeconomic model has centered on fiscal and monetary consolidation, and this is likely to continue through FY26. As a result, the economy appears stuck in a low-growth trap. Based on shipment data, Pakistan's imports stood at $53.4 billion in 11MFY25 compared to $55 billion in 11MFY18. On a payment basis, imports have already surpassed FY18 levels. Yet while GDP grew over 6 percent in FY18, growth in FY25 is projected at below 3 percent. Achieving 6 percent growth again would necessitate a much higher import bill. If the imports-to-GDP ratio were to match FY18, absolute imports would need to exceed $70 billion, a figure that is currently unsustainable. This analysis deliberately excludes FY22, which was an outlier year due to the global commodity supercycle. Since then, global commodity prices, especially agriculture and food commodities, have softened but remain elevated compared to pre-Covid levels. A similar trend holds for industrial metals. Prices are now adjusting to a new, higher baseline. For example, average palm oil prices in 11MFY25 are 46 percent higher than in FY18. Pakistan's palm oil consumption continues to grow organically: quantity-wise, imports are up 16 percent since FY18. Yet the import bill has surged 69 percent. Palm oil now accounts for 6 percent of total imports, compared to a 10-year average of around 4 percent. A similar story is visible in iron and steel. Although global prices remain elevated, import volumes have declined sharply, by 44 percent compared to FY18. The auto sector paints an even starker picture, with dollar imports in FY25 at just 60 percent of FY18 levels. The key takeaway is that consumption of so-called essentials—such as palm oil, tea, and petroleum—is growing due to population growth and a demographic profile skewed toward youth. These goods, particularly food, are rarely taxed to curb demand. Yet their rising import share is effectively crowding out non-essential or productive imports, such as industrial machinery and vehicles. In those sectors, higher taxes and SBP's import restrictions have suppressed demand. Industrial data bears this out. Despite a modest macroeconomic recovery, domestic cement sales are at an eight-year low, two-wheeler sales have fallen below FY17 levels, and car sales remain deeply depressed. While some import categories, such as mobile phones and solar panels, have shown growth, these gains have come at the expense of broader industrial machinery imports. This import pattern does not support productivity enhancement or employment generation. Instead, it reflects an economy increasingly tilted toward consumption, already among the highest in the region. The only bright spot in the external account is remittances. But even these primarily fuel consumption, exacerbating import demand. Economists often refer to this as a form of Dutch disease. The macroeconomic challenge is further compounded by rising geopolitical tensions in the Middle East, which threaten to keep oil and other commodity prices elevated. At current price levels, the economy cannot afford to grow beyond 3 percent without further straining the external account. The going is getting tough. And for the tough to get going, at least economically, the interest rate floor must be redefined. Historically, discount rates of 6–8 percent were enough to trigger growth. Today, it appears that rates will bottom out closer to 10–12 percent. Breaking this pattern will require a fundamental shift: significantly higher levels of external financing, through both debt and investment. Copyright Business Recorder, 2025
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