Pakistan’s external account has shown resilience and stability in the first quarter of FY2025, bolstered by growth in exports, remittances, and foreign direct investment (FDI) despite an increase in imports. During the period from July to September FY2025, the current account deficit narrowed significantly, reducing to just $0.1 billion from $1.2 billion in the previous year. This trend continued positively, with the current account recording a surplus for the second consecutive month in September 2024, reflecting a strong recovery in the country’s external financial indicators.
Export performance saw a promising rise, with goods exports increasing by 7.8%, totaling $7.5 billion in the first quarter. The increase was driven by a strong showing in key export categories, with rice exports up by 77.6%, fruits and vegetables by 17.4%, knitwear by 14.1%, bedwear by 13.3%, readymade garments by 23.2%, and chemicals and pharmaceutical products by 9.7%. However, imports also rose, climbing 15.7% to reach $14.2 billion compared to $12.3 billion last year. This increase in imports has led to a trade deficit of $6.7 billion, up from $5.3 billion the previous year.
The import growth was influenced by notable rises in several key categories. Petroleum crude imports surged by 51%, liquified natural gas by 14.3%, raw cotton by 21.2%, fertilizers by a substantial 367%, machinery by 21.7%, and iron and steel scrap by 4%. The upward trend in imports was anticipated given the increased demand for energy and raw materials necessary to support the recovering economic landscape in Pakistan.
The service sector also contributed positively to the external account, with service exports growing by 5.9% to reach $1.9 billion, while service imports declined by 3.3% to $2.6 billion. This decline in service imports has resulted in a service trade deficit of $0.7 billion, improved from the $0.9 billion deficit recorded last year. Notably, IT exports in particular showed strong momentum, recording a 33.5% growth to reach $0.9 billion, up from $0.7 billion in the corresponding period last year. This growth reflects the continued global demand for Pakistan’s digital and IT-based services.
Foreign direct investment (FDI) also experienced robust growth, totaling $771 million—a 48.2% increase compared to the previous year. China remained the largest source of FDI, contributing $404 million, followed by Hong Kong with $99 million, and the UK with $72.2 million. Sector-wise, the power sector received the highest net FDI inflows, securing $416 million, which accounted for a substantial 54% share of total FDI. This was followed by the oil and gas exploration sector, which attracted $97 million, representing a 12.6% share.
Additionally, portfolio investments saw a mixed trend. Private foreign portfolio investment (FPI) recorded a net outflow of $22.8 million, while public FPI saw a net inflow of $155.3 million. This performance reflects investor confidence in Pakistan’s economic policies and market stability.
Remittances from overseas Pakistanis recorded the highest-ever quarterly inflows, reaching $8.8 billion, marking a 39% increase. Saudi Arabia remained the largest source of remittances, contributing 24.5% of the total. This increase in remittances is a positive indicator for Pakistan’s economy, offering a buffer to the external account and supporting domestic consumption.
Pakistan’s total liquid foreign exchange reserves were reported at $16.0 billion as of October 18, 2024, with the State Bank of Pakistan’s (SBP) reserves standing at $11.0 billion. This improvement in reserves, coupled with the healthy growth in exports, remittances, and FDI, underscores the resilience of Pakistan’s external account as it continues on a path of stability and consolidation.
The recent trends in Pakistan’s external sector indicate a cautiously optimistic outlook as the country navigates its path toward economic recovery. If this positive trajectory in exports, remittances, and foreign investment can be sustained, Pakistan’s external account is poised to maintain its stability in the coming quarters of FY2025.
Source: GoP Finance Division