KARACHI:
Pakistan’s current account surplus narrowed sharply during FY26 as a recovery in economic activity fuelled higher imports, underscoring the delicate balance between growth and external sector stability.
According to the Pakistan Economic Survey 2025-26, the current account recorded a surplus of just $72 million during July-March FY26, compared with a much larger surplus of $1.7 billion in the corresponding period of the previous year.
The deterioration primarily reflected a widening trade deficit as imports increased faster than exports.
The goods trade deficit expanded to $27.9 billion from $22.7 billion a year earlier, driven by a 6.9% increase in imports amid stronger domestic demand and improving industrial activity.
Economists note that rising imports are often a sign of economic recovery, particularly when manufacturers increase purchases of raw materials, machinery and intermediate goods.
However, Pakistan’s history of recurring balance-of-payments crises means policymakers remain cautious about sustained import growth.
The survey highlighted several positive developments that helped prevent the current account from slipping into deficit.
Remittances increased by 8.2% to reach $30.3 billion during July-March FY26, providing a vital cushion against the expanding trade gap.
The services account deficit narrowed to $2.1 billion from $2.3 billion, supported largely by strong growth in IT exports.
Meanwhile, the primary income deficit declined by $364 million to $6.4 billion due to lower interest payments on external liabilities.
Pakistan’s financial account also improved, recording a net inflow of $194 million compared with a net outflow of $1 billion during the previous year.
The improvement was supported by higher official loan disbursements and multilateral financing.
Foreign exchange reserves strengthened substantially, reaching $22.6 billion by mid-May 2026, including $17.1 billion held by the State Bank of Pakistan.
The exchange rate remained broadly stable during the fiscal year, averaging Rs281.1 per dollar.
Officials argue that stronger reserves and a stable currency have improved investor confidence and reduced external vulnerabilities.
Analysts say the shrinking current account surplus reflects the next phase of Pakistan’s economic recovery, where stronger growth inevitably generates higher import demand.
The key challenge will be ensuring export growth, remittances and foreign investment continue to expand sufficiently to finance those imports without creating renewed pressure on the balance of payments.
For now, Pakistan has managed to preserve external stability, but the survey’s figures suggest that sustaining growth while maintaining a manageable external position will remain one of the government’s most important economic tests.