Qudsia Bano

Pakistan’s balance of payments position witnessed sharp swings in FY25, while early indicators for FY26 point to renewed external pressures as import demand strengthens and income outflows remain elevated.

For the full FY25 period (July–June), the current account recorded a surplus of $1.93 billion, reversing a deficit of $2.07 billion in FY24. The improvement was largely driven by strong secondary income inflows, particularly workers’ remittances, which helped offset a wide trade deficit.

However, the momentum weakened toward the end of FY25. During July–December FY25, the current account posted a surplus of $957 million. In contrast, provisional figures for the same period of FY26 show a deficit of $1.17 billion, reflecting a deterioration in trade and income balances.

Trade data indicate that the goods deficit remained a major drag. In FY25, goods exports increased to $32.34 billion, while imports rose more sharply to $59.11 billion, resulting in a trade gap of $26.77 billion. In the first half of FY26, goods exports totaled $15.51 billion against imports of $31.33 billion, widening the goods trade deficit to $15.82 billion from $11.58 billion in the corresponding period a year earlier.

The services account provided partial relief but remained in deficit. Services exports rose to $8.41 billion in FY25, while imports reached $11.05 billion, leaving a services deficit of $2.65 billion. During July–December FY26, the services trade gap stood at $1.74 billion, compared with $1.53 billion in the same period of FY25.

Primary income outflows continued to weigh on the external account. The primary income deficit amounted to $9.10 billion in FY25 and remained high at $4.62 billion in the first half of FY26, reflecting payments on investment income and debt service.

Secondary income remained the key stabilizing factor. Workers’ remittances increased from $38.30 billion in FY25 to $19.73 billion in the first half of FY26, compared with $17.85 billion in the corresponding period of FY25. Overall, the secondary income surplus reached $40.45 billion in FY25 and $21.00 billion during July–December FY26.

On the financial account, FY25 recorded net inflows of $1.66 billion, supported by portfolio and other investment flows. In contrast, the first half of FY26 showed net outflows of $1.33 billion, driven by lower direct investment inflows and higher other investment outflows.

As a result, the overall balance turned negative in early FY26. The overall balance recorded a deficit of $564 million during July–December FY26, compared with $1.71 billion in the same period of FY25. Despite this, gross foreign exchange reserves improved to $17.36 billion by December FY26, up from $12.98 billion at the end of December FY25.

The FY25–FY26 data underscore the economy’s continued reliance on remittance inflows to offset structural trade and income deficits, while highlighting emerging external vulnerabilities as import demand gains strength.

Credit: INP-WealthPk