Pakistan’s external sector has demonstrated continued resilience during the first quarter of FY2026, supported by a steady rise in exports and strong remittance inflows that have helped stabilize the current account position despite persistent global economic challenges.
According to the latest data, the current account recorded a deficit of $594 million during July to September FY2026, compared to a deficit of $502 million in the same period last year. However, encouragingly, the current account turned into a surplus of $110 million in September 2025, marking a positive turnaround driven by a stronger export performance and robust inflows from overseas Pakistanis.
Goods exports rose by 6.5 percent to $7.9 billion during the quarter, reflecting continued demand for Pakistan’s key manufacturing sectors, particularly in textiles. The strongest gains were observed in knitwear, which surged by 12.2 percent, followed by garments up by 6.1 percent and bedwear by 7.3 percent. These categories continue to be the backbone of Pakistan’s export base, benefiting from competitive pricing and improved market access in North America and Europe.
On the import side, total inflows grew by 8.3 percent to $15.4 billion, resulting in a trade deficit of $7.5 billion compared to $6.8 billion recorded last year. The rise in imports was largely attributed to increases in petroleum products by 3.1 percent and palm oil by 34.1 percent, reflecting higher international commodity prices and strong domestic demand. However, petroleum crude imports declined slightly by 0.2 percent, providing a marginal offset to the overall trade gap.
Service exports also posted encouraging growth of 14.8 percent, reaching $2.2 billion, while service imports rose by 11.2 percent to $3.1 billion. This led to a service trade deficit of $931 million, slightly higher than the $900 million deficit recorded a year earlier. Notably, IT exports maintained strong momentum, increasing by 20.4 percent to $1.1 billion, underscoring the sector’s growing role in Pakistan’s digital economy and external earnings.
Remittance inflows from overseas Pakistanis continued to be a vital source of external stability, rising 8.4 percent to $9.5 billion during the first quarter of FY2026. The majority of these inflows originated from Saudi Arabia, which contributed 24.2 percent, followed by the United Arab Emirates with a 20.8 percent share. This growth highlights the resilience of expatriate contributions, even amid global uncertainties.
In contrast, net foreign direct investment (FDI) inflows recorded a decline, amounting to $568.8 million during the quarter. The main sources of investment were China, contributing $188.6 million, and Hong Kong with $96.0 million. Sector-wise, the power sector attracted $244.3 million, while financial services secured $180.2 million in new investments, signaling continued investor confidence in Pakistan’s infrastructure and finance sectors.
Portfolio investment flows, however, reflected a more cautious outlook. Private foreign portfolio investment (FPI) recorded net outflows of $121.5 million, while public FPI witnessed higher outflows of $511.8 million during the same period. Analysts note that global monetary tightening and cautious investor sentiment may have contributed to these movements.
As of October 17, 2025, Pakistan’s foreign exchange reserves stood at $19.9 billion, of which $14.5 billion were held by the State Bank of Pakistan. The stability in reserves underscores the country’s capacity to manage its external obligations while sustaining a healthy balance between imports, exports, and remittance inflows.
Overall, the first quarter of FY2026 reflects a cautiously optimistic external position. With exports maintaining growth momentum, IT services expanding rapidly, and remittances remaining strong, Pakistan’s external account stability continues to be underpinned by resilient structural fundamentals. Sustained policy continuity, fiscal prudence, and export diversification remain key to consolidating these gains in the months ahead.
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