Pakistan’s external position strengthened during the opening months of fiscal year 2026-27, supported by higher workers’ remittances, stronger services exports, increased investment inflows and renewed access to international capital markets. According to the September 2026 Monthly Economic Update and Outlook, the current account deficit narrowed to $543 million during July and August FY2027 from $853 million during the corresponding period of the previous year. The improvement came despite a wider merchandise trade gap as higher imports, particularly amid increased oil prices and recovering domestic demand, placed pressure on the external account.
Goods imports increased by 11.4 percent during the first two months of FY2027, significantly outpacing the 4.0 percent growth recorded in goods exports. The rise in imports reflected higher oil prices as well as improving domestic demand. A larger import bill normally places additional pressure on the current account because more foreign exchange is required to finance purchases from international markets. However, the increase in imports was offset to a significant extent by stronger inflows from remittances and services exports.
Workers’ remittances emerged as a major source of support for the external account. Remittance inflows increased 14.7 percent to $7.29 billion during July and August FY2027. The amount exceeded the combined goods and services deficit of $6.75 billion during the period. The strong growth in remittances provided foreign exchange inflows that helped contain the current account deficit despite the increase in the import bill.
Services exports also recorded significant growth during the period. Services exports increased 28.8 percent to $1.81 billion, contributing to a reduction in the services deficit of approximately one-quarter. The improvement reflects the growing contribution of services-related foreign exchange earnings to Pakistan’s external position. Alongside remittances, stronger services exports provided an important source of non-merchandise foreign exchange inflows at a time when the goods trade balance remained under pressure from higher imports.
The latest figures indicate that non-trade inflows are playing an increasingly important role in limiting the current account deficit. While goods imports expanded faster than goods exports during the first two months of FY2027, the increase in workers’ remittances and services exports helped offset the additional pressure. The combination of these inflows allowed the current account deficit to remain below the level recorded during the same period last year.
External financing conditions also improved during the opening months of the fiscal year. Foreign direct investment and portfolio investment inflows combined increased by 80.2 percent to $562 million. Foreign direct investment alone increased by approximately one-quarter to $494.5 million, while portfolio investment flows turned positive. The increase in investment inflows provided another source of foreign exchange and contributed to the improvement in Pakistan’s overall external financing position.
A major development during the period was Pakistan’s return to the international capital markets through a $3.0 billion Eurobond issuance in September. The issuance provided additional external financing and contributed to strengthening the country’s foreign exchange reserve position. Access to international debt markets also represents an additional source of financing for external obligations, although future external requirements will continue to depend on debt repayments, imports, exports and other foreign exchange flows.
The State Bank of Pakistan’s liquid foreign exchange reserves reached $21.39 billion as of September 18, according to the economic update. The level was equivalent to approximately three months of goods and services imports. Total liquid foreign exchange reserves, including holdings outside the central bank, stood at $26.8 billion. The improvement in reserve buffers provides greater coverage against external payment requirements and offers additional capacity to manage movements in the import bill.
Higher oil prices remain an important factor for Pakistan because energy imports account for a significant portion of the country’s external payments. An increase in global oil prices can raise the cost of imports and place pressure on the current account even when domestic demand and economic activity are improving. The stronger reserve position, increased remittance inflows and improved services exports can help offset some of this pressure.
The external account data for the beginning of FY2027 therefore shows improvement across several areas. The current account deficit narrowed despite a wider goods trade gap, while remittances increased sharply and services exports recorded strong growth. Investment inflows also increased, and the $3.0 billion Eurobond issuance provided additional external financing. Together, these developments contributed to higher reserves and improved access to foreign exchange.
According to the September 2026 Monthly Economic Update and Outlook, stronger reserve buffers and renewed access to international capital markets have improved Pakistan’s capacity to manage the higher oil import bill and upcoming external debt obligations. The sustainability of the external position will continue to depend on the performance of exports, remittances, services receipts, investment flows, import costs and external financing during the remainder of FY2027.
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