Pakistan’s external account performance in July FY2026 indicates cautious optimism as the current account deficit narrowed to $254 million, down from $348 million in the same month last year. While the trade deficit widened due to higher import bills, the overall external position improved on the back of stronger exports, rising remittances, and robust inflows in the services and IT sectors.
Goods exports recorded a solid increase of 16.2 percent, reaching $2.7 billion in July FY2026. At the same time, imports rose by 11.8 percent to $5.4 billion. This resulted in a trade deficit of $2.7 billion, slightly higher than the $2.5 billion gap recorded in July FY2025. Export gains were broad-based, with notable growth in knitwear, which jumped by 43.5 percent, garments rising 35.5 percent, and bedwear climbing 38.3 percent. These gains reflect continued resilience in Pakistan’s textile sector, which remains the backbone of the country’s export economy.
On the import side, demand for key commodities pushed the bill upward. Petroleum products increased by 27.4 percent, crude oil imports rose by 10.4 percent, and palm oil surged by 26.1 percent. These rises highlight Pakistan’s dependence on energy and food imports, which continue to weigh on the trade balance despite strong export performance.
The services sector posted encouraging figures, with exports growing 18.1 percent to $745 million. Imports in services, however, fell slightly by 0.7 percent to $871 million. This helped reduce the services trade deficit to $126 million, almost half of the $246 million recorded last year. Information technology exports stood out with a 23.8 percent increase, reaching $354.6 million. Analysts view IT as a key driver for Pakistan’s external stability, given its potential for sustainable growth and global demand.
Worker remittances remained a vital pillar of external support, rising by 7.4 percent to $3.2 billion. Saudi Arabia accounted for the largest share at 25.6 percent, followed by the UAE with 20.7 percent. These inflows continue to provide much-needed stability to the balance of payments, cushioning the impact of rising imports.
Foreign Direct Investment (FDI) flows showed moderate improvement, increasing by 6.9 percent to $208.1 million. Major contributions came from China ($51.4 million), Canada ($37.8 million), and Hong Kong ($30.1 million). Sector-wise, power attracted $70.4 million, while financial services received $58.9 million, reflecting investor confidence in energy and banking. However, foreign portfolio investments saw net outflows of $33.8 million from the private sector and $10.8 million from the public sector, highlighting investor caution in Pakistan’s financial markets.
As of August 15, 2025, Pakistan’s foreign exchange reserves stood at $19.6 billion, of which $14.3 billion were held by the State Bank of Pakistan (SBP). This provides a reasonable cushion against external shocks, though sustained efforts are required to build further resilience.
Economists note that while the narrowing current account deficit and stronger inflows in remittances and IT exports are encouraging, Pakistan’s heavy reliance on energy imports remains a key vulnerability. The path forward will require a balanced strategy of boosting export competitiveness, attracting diversified FDI, and reducing dependence on imported commodities.
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