CurrentAccount – Pakistan Records $1.07 Billion Deficit in FY26 First Half

CurrentAccount – Pakistan’s external finances have come under renewed pressure during the first seven months of the 2025-26 fiscal year, as a widening trade gap outweighed gains from remittances and services exports. Fresh figures released by the State Bank of Pakistan show the country posted a current account deficit of 1.07 billion US dollars between July and January, reversing the 564 million dollar surplus recorded during the same period last year.

Trade Imbalance Drives Reversal

The shift in the current account position has largely been attributed to a sharp rise in imports, which significantly exceeded export earnings. Official data indicate that the merchandise trade deficit expanded to 18.4 billion dollars during the July-January period, compared with 14.1 billion dollars a year earlier.

Goods exports slipped to 18.26 billion dollars, down from 19.33 billion dollars in the corresponding months of the previous fiscal year. At the same time, imports climbed to 36.66 billion dollars. Analysts link the surge in inbound shipments to the easing of earlier import restrictions and a gradual pickup in domestic economic activity.

Higher purchases of industrial raw materials, petroleum products, and capital machinery contributed to nearly 10 percent year-on-year growth in import spending. While exports had shown some improvement last year, that momentum appears to have slowed in the current fiscal cycle.

Services and IT Exports Show Growth

The broader deficit in goods and services widened to 20.47 billion dollars, compared with 15.88 billion dollars in the same period last year. Although services exports recorded growth, the increase was not sufficient to offset the expanding goods deficit.

Services exports reached 5.66 billion dollars during the first seven months of FY26. The information technology and telecommunications sectors remained central to this performance. IT and IT-enabled services generated 2.61 billion dollars, continuing to be the largest contributor within the services category.

Industry observers note that Pakistan’s IT sector has maintained relative resilience despite global economic uncertainties, helping cushion some of the pressure created by the trade imbalance.

Remittances Provide Crucial Support

Worker remittances once again played a stabilising role in the country’s external accounts. Inflows from overseas Pakistanis rose to 23.20 billion dollars during July-January, pushing the secondary income surplus to 24.73 billion dollars.

These transfers have remained a vital source of foreign exchange for Pakistan, supporting household consumption and easing pressure on the balance of payments. However, experts caution that remittances alone cannot fully counterbalance structural weaknesses in trade performance.

Meanwhile, the primary income deficit, which includes external debt servicing and profit repatriation by foreign investors, stood at 5.33 billion dollars during the period. Debt repayments continue to weigh on the overall external position.

Financial Account and Investment Trends

On the financing side, the financial account recorded a net outflow of 1.35 billion dollars. Foreign direct investment declined to 982 million dollars compared to higher levels in the previous year. Portfolio investment flows also remained negative, as repayments and capital outflows exceeded fresh inflows.

The decline in foreign investment reflects cautious investor sentiment amid economic adjustments and external financing requirements.

Despite these challenges, Pakistan’s foreign exchange reserves rose to 17.44 billion dollars by the end of January FY26. The increase was largely supported by disbursements from multilateral and bilateral lenders. Analysts say this underscores the country’s continued reliance on external financial assistance to maintain stability and meet its external obligations.

Overall, the latest balance of payments data highlight the delicate balance facing policymakers as they seek to sustain economic recovery while managing trade pressures and external debt commitments.