Karachi, September 18, 2024 – Pakistan’s current account deficit witnessed a sharp contraction of 81% during the first two months (July–August) of the current fiscal year 2024-25, according to a report released by the State Bank of Pakistan (SBP) on Wednesday. The deficit fell to $171 million, compared to $893 million in the corresponding period of the previous fiscal year.
This dramatic reduction in the deficit is largely attributed to an improvement in Pakistan’s trade balance and a substantial increase in workers’ remittances. The trade balance saw notable progress, driven by a surge in exports, which rose by 14.42% to $5.07 billion during the first two months of FY25, compared to $4.43 billion in the same period of FY24.
However, imports also experienced an uptick, growing by 7.16% to reach $8.75 billion during the July–August period of FY25, compared to $8.16 billion in the corresponding months of the previous fiscal year. Despite this rise in imports, the overall trade deficit improved slightly, falling by 1.45% to $3.68 billion, compared to $3.74 billion in the same period last year.
Economists pointed to the improved export performance as a crucial factor in narrowing the current account deficit. The growth in exports was attributed to increased demand for Pakistani goods in international markets, particularly textiles, agricultural products, and other manufacturing sectors. Simultaneously, the moderate growth in imports was due to higher global commodity prices, especially energy imports, which have been a significant part of Pakistan’s import bill.
Another key driver behind the narrowing deficit is the robust increase in workers’ remittances, which surged by an impressive 44% during the first two months of FY25. Remittance inflows reached $5.9 billion, up from $4.1 billion in the same period of FY24. This surge has provided critical support to Pakistan’s balance of payments and foreign exchange reserves, easing pressure on the local currency.
In August 2024, the balance of payments posted a surplus of $75 million, a significant turnaround from the $152 million deficit recorded in August 2023. The surplus also marked an improvement from the $246 million deficit in July 2024.
Analysts are cautiously optimistic about the continuing improvement in the current account, but they also warned that external factors, such as fluctuating global commodity prices and geopolitical risks, could pose challenges for Pakistan’s trade and foreign exchange outlook in the coming months.