Pakistan’s external account position continues to draw support from strong exports and robust inflows of workers’ remittances, although challenges persist as the current account deficit widened during the first two months of FY2026.
According to official data, the current account recorded a deficit of $624 million in July–August FY2026, compared with $430 million in the same period last year. While the deficit has increased, underlying support from goods exports and remittances has helped mitigate the pressure, ensuring that Pakistan’s external financing needs remain within manageable limits.
Goods exports posted a notable improvement, rising by 10.2 percent to $5.3 billion during the two-month period. This increase was largely driven by gains in traditional high-performing sectors. Knitwear exports surged 16.9 percent, garments grew by 10.6 percent, and bedwear registered an impressive 12.0 percent rise. Together, these categories helped offset some of the pressures created by higher import demand.
Imports, however, grew by 8.8 percent, reaching $10.4 billion. The largest increases were observed in petroleum products, which rose 17.8 percent, and palm oil, which surged 29.1 percent. On the other hand, petroleum crude imports declined by 6.1 percent, providing some relief to the overall import bill. As a result, the goods trade deficit widened to $5.1 billion compared with $4.8 billion in the same period last year.
Service trade dynamics also contributed to the imbalance. Exports of services grew 11.5 percent to $1.4 billion, driven partly by strong performance in IT and related segments. Service imports, however, increased at a faster pace of 13.4 percent to $2.1 billion, leading to a service trade deficit of $708 million against $604 million a year earlier. Within services, IT exports demonstrated remarkable resilience, growing 18.3 percent to $691.7 million, highlighting the sector’s growing role in Pakistan’s external revenue mix.
Workers’ remittances, a critical lifeline for the economy, rose by 7.0 percent to $6.4 billion. Inflows were particularly strong from Saudi Arabia, which accounted for 24.6 percent of total remittances, and the UAE, with a 20.6 percent share. These inflows helped offset pressures from the goods and services trade deficits, providing critical foreign exchange support.
Foreign direct investment (FDI) flows also added some stability. Net FDI inflows stood at $364.3 million, with China contributing $120 million and Hong Kong $60 million. Sector-wise, the power sector attracted $156.9 million, while financial services received $110.2 million, underlining investor confidence in energy and finance. On the other hand, both private and public foreign portfolio investments (FPI) recorded net outflows of $74.8 million and $11.8 million, respectively, signaling continued volatility in portfolio capital movements.
As of September 19, 2025, Pakistan’s foreign exchange reserves stood at $19.8 billion, including $14.4 billion held by the State Bank of Pakistan. These reserves provide a reasonable buffer against short-term external shocks, though sustaining them will depend on consistent remittance inflows, resilient exports, and careful management of imports.
Analysts suggest that while the widening current account deficit is a concern, the growth in exports and remittances reflects underlying strengths in the external sector. However, rising import costs, particularly in petroleum and food items, could continue to strain the balance unless managed through prudent policies and diversification strategies.
Overall, Pakistan’s external account remains under pressure but is being cushioned by steady remittances and export growth, with the IT sector emerging as a bright spot. The months ahead will be critical in determining whether these inflows are sufficient to balance the growing demand for imports and external obligations.
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