In a positive development for Pakistan’s economy, the country’s current account balance recorded a surplus of $75 million in August 2024, marking a significant shift from previous deficits. According to data released by the State Bank of Pakistan (SBP) on Wednesday, this surplus ends a series of three consecutive months where the current account had been in deficit, signaling potential stabilization in Pakistan’s external accounts.
The turnaround comes as a result of strong growth in remittances from Pakistanis abroad, which played a pivotal role in offsetting the nation’s import bills and other external payments. As per the SBP’s figures, remittances reached $2.9 billion in August, a 40 percent increase year-on-year (YoY). This surge in remittance inflows has contributed significantly to reversing the deficit trend, giving the country a much-needed boost in foreign exchange reserves.
Despite the surplus in August, the cumulative current account for the first two months of the Fiscal Year 2025 (2MFY25) remains in deficit, although it has considerably improved compared to the same period last year. The deficit for July and August combined stood at $171 million, a decrease of 81 percent YoY. This substantial reduction highlights the country’s efforts to manage its balance of payments more effectively and reduce its reliance on external debt.
According to Topline Securities, one of Pakistan’s leading financial advisory firms, the sharp improvement in the current account is primarily due to the remarkable growth in remittances. On a cumulative basis, remittances for the first two months of FY25 have increased by 44 percent YoY, reflecting a consistent upward trend in inflows from the Pakistani diaspora.
Remittances have always been a critical source of foreign exchange for Pakistan, helping to narrow the current account gap, especially in times of economic distress. The significant rise in remittances this year is partly attributed to the easing of restrictions on official remittance channels and the depreciation of the Pakistani rupee, which has made sending money home more attractive for overseas Pakistanis. Additionally, global economic recovery and higher demand for labor in key regions such as the Middle East have contributed to higher earnings for Pakistani workers abroad.
However, while the surplus is a positive indicator, Pakistan’s broader economic challenges persist. The country continues to face high inflation, a weak currency, and external debt obligations, which require careful management of its fiscal and monetary policies. The State Bank of Pakistan (SBP) and the Ministry of Finance will need to remain vigilant in maintaining a delicate balance between supporting economic growth and ensuring external stability.
Pakistan’s current account balance is a crucial indicator of its economic health, as it measures the difference between the value of goods and services the country exports and imports, along with other financial transactions such as remittances. A surplus indicates that Pakistan is earning more from its exports and remittances than it is spending on imports and external debt repayments, which strengthens the country’s foreign exchange reserves and supports the rupee.
Despite the recent improvement, analysts warn that the current account remains vulnerable to fluctuations in global oil prices and trade dynamics. A significant portion of Pakistan’s import bill is linked to energy costs, and any sharp rise in oil prices could put renewed pressure on the current account, reversing recent gains. Additionally, the International Monetary Fund (IMF) continues to monitor Pakistan’s economic reforms as part of its extended financial support program, urging the government to keep a close eye on fiscal discipline and revenue generation.
Looking ahead, Pakistan’s economic managers will need to focus on sustaining the remittance momentum while exploring ways to boost export earnings and reduce unnecessary imports. Diversifying the export base, improving local production capacity, and enhancing trade partnerships will be key components of a longer-term strategy to achieve sustainable external balance.
The current account surplus in August 2024 is a positive signal, but it also reflects the broader challenges that Pakistan’s economy faces in ensuring long-term stability. Continued support from the State Bank of Pakistan, fiscal policy measures, and strategic management of foreign reserves will be critical in maintaining the upward trajectory in the coming months.
As the global economy continues to navigate uncertainties, Pakistan’s ability to maintain its remittance flows, manage its import bill, and execute fiscal reforms will determine the sustainability of this newfound current account surplus.