Pakistan's trade deficit with nine neighboring countries ballooned to nearly $16 billion in the fiscal year 2025-26, a 30 percent surge driven by surging imports from China and a sharp drop in exports to Afghanistan. The imbalance, which has widened for two consecutive years, underscores deepening structural trade challenges that leave the country increasingly reliant on a single regional partner for both exports and imports. Main Developments According to State Bank of Pakistan data, the deficit stood at $15.933 billion in FY26, up from $12.256 billion the previous year. Exports to the nine countries—Afghanistan, China, Bangladesh, Sri Lanka, India, Iran, Nepal, Bhutan, and the Maldives—fell 11 percent to $3.953 billion, while imports rose 19.1 percent to $19.886 billion. China accounted for 98 percent of all regional imports, totaling $19.538 billion—a 19.8 percent increase from $16.312 billion in FY25. Exports to China grew only 8.4 percent to $2.684 billion, leaving a massive $16.854 billion bilateral deficit. Other countries contributed negligible import shares. Read also: Pakistan Mobile Phone Imports Surge 259% as Apple, Google Drive Shift Trade with Afghanistan remained suspended from October 10, 2025, causing exports to plunge 68.9 percent to $243.693 million from $783.945 million. Imports from Afghanistan also dropped 74.9 percent to $6.497 million. Exports to Bangladesh declined 9.3 percent to $715.589 million, and shipments to Sri Lanka fell 22.8 percent to $293.376 million. Background The widening deficit is not a new trend. In FY25, the trade gap with the same group of countries had already expanded by 29.42 percent to $12.297 billion from $9.502 billion in FY24. The consecutive double-digit increases highlight a persistent structural imbalance rather than a one-off shock. Pakistan's regional export basket remains heavily concentrated. China alone absorbs 68 percent of all exports to the nine countries, while the remaining eight share just 32 percent. On the import side, China's dominance is even more pronounced, accounting for virtually all regional inbound trade. Exports to India—a market historically constrained by political tensions—rose 104 percent in dollar terms but remained negligible at $2.926 million. Imports from India fell 7.6 percent to $168.730 million. Why It Matters The growing trade gap with neighbors signals eroding competitiveness in nearby markets that should be natural trading partners due to geographic proximity. The near-total reliance on China for both exports and imports creates a lopsided relationship that leaves Pakistan vulnerable to policy shifts in Beijing. Suspended trade with Afghanistan, which was once a significant export destination, has further squeezed regional revenue. The decline in exports to Bangladesh and Sri Lanka suggests that Pakistani goods are losing ground even in traditional South Asian markets. Without diversification, the country risks deepening its dependency on a single partner while missing opportunities in growing regional economies. What's Next Trade with Afghanistan remains frozen with no indication of when or if normal cross-border commerce will resume. Pakistan's export performance in FY27 will depend heavily on whether alternative routes or diplomatic breakthroughs emerge. With China's share of regional imports at 98 percent, any slowdown in Chinese demand or changes in trade terms could have outsized effects on Pakistan's overall trade balance. Policymakers face pressure to explore new export markets and reduce the structural deficit through targeted industrial and trade policies.