Cash-strapped Pakistan has slashed its trade deficit by a staggering 43 per cent to USD 27.55 billion in the fiscal year 2023, according to a media report on Wednesday.

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The government's stringent control over imports played a vital role in this significant reduction, as it aimed to stabilise the country's critically low foreign exchange reserves and mitigate the risk of default.

In the previous fiscal year 2022, the trade deficit had widened to a daunting USD 48.35 billion, causing concern about the country's economic stability, The Express Tribune newspaper reported.

However, the government's strict administrative measures on imports and the impact of floods in 2022 negatively affected the domestic economy, resulting in a provisional growth rate of only 0.3 per cent in FY23, compared to 6.1 per cent in FY22.

Recent data from the Pakistan Bureau of Statistics (PBS) said that imports decreased by 31 per cent to USD 55.29 billion in FY2023. This is a significant drop from the record high of USD 80.13 billion in FY22.

Meanwhile, export earnings contracted by nearly 13 per cent to USD 27.74 billion in the import-dependent domestic economy during FY23, compared to USD 31.78 billion in FY22. Despite these challenges, experts noted that the performance of Pakistan's exports in overseas markets exceeded expectations.

Despite inflationary pressures, people in major export markets like Europe and the US reduced their spending, which contributed to better-than-expected export figures.

Ismail Iqbal Securities (IIS) head of research, Fahad Rauf, projected that the trade deficit could increase again in FY24 once the government lifts the ban on imports as part of the conditions set for the USD 3 billion loan programme by the International Monetary Fund which signed a staff-level agreement with the Pakistan government on a USD 3 billion “stand-by arrangement” to support the authorities' immediate efforts to stabilise the economy from external shocks.

To stabilise and revive the compromised economy from FY23, the country will need to gradually increase economic activities and aim for growth in FY24, he said. The government has set a target of 3.5 per cent economic growth for the current fiscal year, after experiencing a contraction in FY23.

Rauf clarified that the official report on FY23's full-year growth figures is yet to be released, but the government has provisionally reported a modest growth rate of 0.3 per cent.

Rauf praised the government's “conscious decision to live within its means”, which resulted in a significant 43 per cent reduction in the trade deficit in FY23. He explained that the government only allowed imports equivalent to export earnings and inflows of workers' remittances to avoid financing the deficit through foreign debt. This policy not only helped repay maturing foreign debt on time but also prevented default.

In contrast, the previous finance minister, Miftah Ismail, had initially advised businessmen to control imports for the first three months of FY23, anticipating that the revival of the IMF programme would allow a full resumption of imports.

However, poor implementation of the programme's conditions led to multiple suspensions, preventing the reopening of imports throughout the year, according to the newspaper.

Pakistan had been barely managing its external liabilities as its foreign reserves hovered around USD 4 billion while experts warned of default in coming months. With the IMF approving its policies, the country will get access to multilateral and bilateral loans to build its reserves and plan for a long time.

The country's economy has faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine.

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