Business Recorder Editorials 8th September 2026

Widening trade deficit

EDITORIAL: Data released by the Pakistan Bureau of Statistics (PBS) for July-August 2026 against the same period the year before revealed a widening of the trade deficit – from negative 6.025 billion dollars to negative 7.116 billion dollars, a rise of 18.11 percent.

Exports rose by 7.04 percent between July-August 2026 against the same period in 2025 while imports rose by 13.03 percent.

Three observations are critical for an informed analysis. First, details of which items contributed to a rise in exports are available for July this year but not for August with the July data indicating that the major rise in exports was in textiles and textile articles (with a decline in raw cotton exports and the largest contributor being apparel, clothing and knitted items) followed by base metals; mainly, copper and aluminum and tools, implements, and cutlery.

Secondly, the rise is cited in dollar terms (value) rather than in volume so the obvious assumption is that the price of exports in the international market has increased – a rise that is easily explained by woeful curtailment of shipping in the Strait of Hormuz as a result of the ongoing Middle East conflict. This led to the use of air, a more expensive form of transport, to export, which led to a rise in the value of the items though, perhaps, not higher volume.

And finally, imports of petroleum and products that one would have assumed have risen in value considerably due to the conflict declined in July this year to 1.198 billion dollars against 1.655 billion dollars in July 2025. This may lead one to conclude that the government may have reduced its imports, as has been evident in other countries, including China. If this is indeed the case, then one can assume that the productive sectors may be forced to cut back that, in turn, would lead to a decline in Gross Domestic Product (GDP) growth rate that accounts for a rise in employment as well as a reduction in inflation.

In other words, this scenario would have serious negative repercussions on the quality of life of the general public.

What is, however, unclear from only the July data is whether the government, through structural reforms, has broken the vicious cycle of a widening current account deficit that has compelled successive governments to impose administrative measures curtailing imports as well as seeking an International Monetary Fund programme loan, which, in turn, throttles export revenue as productive sectors reliant on raw material and/or semi-finished product imports as inputs are forced to drastically reduce, if not cease, output.

Pakistan cannot be held accountable for the geopolitical crisis brought on by the US-Israel attack on Iran on 28 February this year, with severe negative repercussions on the world economy, including Pakistan, to this day, but what Pakistan can do is to undertake reforms that would end this vicious cycle once and for all. It is therefore critical for the government to encourage development of those industries that export not the surplus as is the case of most of our export items today, barring IT exports, but produce to export as is the case in other countries embarked on the road to reaching the take-off stage.

In sum, if the government must focus on ending the vicious cycle with the objective of reaching a trade surplus that would go a long way in not only reducing the need for the government to extend subsidies to existing industries that, as correctly noted by the Fund, have retained the status of ‘infant’ even after decades of fiscal and monetary incentives but also slowly but surely reduce Pakistan’s dependence on borrowing.

A ceasefire in fine print

EDITORIAL: The renewed exchange of US and Iranian strikes has pushed a war that had already defied every promise of a quick conclusion back towards dangerous escalation.

Iran is signalling that it remains prepared to return to diplomacy if Washington honours the Islamabad Memorandum of Understanding, while the Trump administration appears increasingly constrained by domestic politics as November’s congressional elections approach.

Washington’s hesitation may be understandable in electoral terms, but allowing military confrontation to drift until the domestic political calendar becomes more convenient is an extraordinarily dangerous way to manage a war centred on one of the world’s most important energy arteries.

The costs are already spreading far beyond the battlefield. The IMF has warned that inflationary pressure resulting from the continuing disruption in the Strait of Hormuz is contributing to higher global borrowing costs and threatening progress made by developing and low-income countries in controlling their debt burdens.

Oil prices continue to complicate inflation, monetary policy and public finances, while uncertainty over shipping through Hormuz keeps a substantial risk premium embedded in international energy markets. Countries thousands of miles from the conflict are therefore paying for decisions over which they exercise no control.

The human cost is worsening as well. Civilian casualties inside Iran continue to rise as American strikes intensify, Iranian retaliation against US assets and attacks affecting Gulf states and shipping widen the circle of danger.

Once military exchanges acquire their own momentum, every retaliation provides justification for the next one. The room for miscalculation grows with every round, and so does the possibility that a supposedly controlled confrontation develops into something neither side originally intended.

What makes the situation especially frustrating is that the latest breakdown appears to have become entangled in the deliberately ambiguous wording of the Islamabad MoU.

Iran interprets provisions concerning Hormuz as recognising its authority to control passage through the strait, while Washington insists upon free navigation without Iranian supervision. An agreement intended to stop the fighting therefore left one of the most consequential questions unresolved. That ambiguity has now become another source of confrontation.

This should make renewed negotiation urgent. Iran has signalled willingness to return to the diplomatic track, and the mediation architecture created through Islamabad remains available.

Washington’s reluctance, influenced partly by fears of appearing weak on Iran so close to congressional elections, risks allowing political calculation at home to dictate escalation abroad. Wars do not become safer simply because politicians would prefer to postpone difficult compromises until after polling day.

This space has repeatedly argued that this was a pointless war from the beginning, pushed towards military confrontation at Israel’s instigation and subsequently embraced by Washington without any convincing explanation of how force would deliver a durable political settlement.

The consequences are now increasingly difficult to disguise: death and destruction, disruption through Hormuz, higher energy costs, pressure on global inflation and debt, and an American military commitment with no obvious route to an acceptable end-state.

Something will have to give. Iran cannot indefinitely hold international shipping hostage to its interpretation of a disputed clause, and the United States cannot indefinitely substitute military pressure for negotiations while assuming escalation will remain manageable.

The Islamabad MoU may require clarification or renegotiation, particularly over Hormuz, but that is precisely what diplomacy is for.

The alternative is to keep discovering, strike by strike and tanker by tanker, just how expensive ambiguous peace and open-ended war can become.