Pakistan’s Current Account Deficit Narrows by 92% in 1QFY25

Karachi, October 21, 2024 – Pakistan’s current account deficit sharply contracted by a staggering 92% year-on-year (YoY) in the first quarter of the fiscal year 2024-25, according to data released by the State Bank of Pakistan (SBP) on Monday.

The deficit plummeted to just $98 million during the July-September period, a significant reduction compared to the $1.24 billion recorded in the same period of the previous fiscal year.

Mohammad Sohail, CEO of Topline Securities Limited, attributed this dramatic narrowing of the current account deficit to the consecutive current account surpluses posted over the past two months. The SBP’s report highlighted that Pakistan registered a surplus of $29 million in August and $119 million in September 2024, marking a positive shift in the country’s balance of payments.

Rising Exports and Remittances Drive Surplus

The sharp reduction in the current account deficit is largely due to a notable increase in exports and a robust inflow of workers’ remittances. According to the SBP, exports surged by 14.61% during the first quarter of FY25, rising to $7.91 billion compared to $6.90 billion in the same period last year. This growth reflects the strengthening of key export sectors such as textiles, pharmaceuticals, and agricultural products, driven by favorable market conditions and government incentives.

Moreover, inflows from workers’ remittances played a pivotal role in boosting Pakistan’s external account. Workers sent home a remarkable $8.8 billion in remittances during Q1-FY25, representing an impressive 38.8% YoY growth. These remittances provided critical support to the economy, easing the pressure on foreign exchange reserves and helping to offset the trade deficit.

Rising Imports and Widening Trade Deficit

Despite the positive trends in exports and remittances, Pakistan’s imports also saw a significant increase, rising by 10.58% YoY to $13.40 billion during July-September 2024, compared to $12.12 billion in the same period last year. This surge in imports, driven by rising global energy prices and higher demand for capital goods, led to a 5.26% widening of the trade deficit. The trade deficit expanded to $5.49 billion in 1QFY25, up from $5.21 billion in the corresponding quarter of FY24.

Nevertheless, the increase in exports and remittances managed to mitigate the overall impact of the trade imbalance, allowing for a marked contraction in the current account deficit.

Outlook for the Fiscal Year

With the continued rise in remittances and exports, coupled with government efforts to promote foreign direct investment and stabilize foreign reserves, Pakistan’s external account appears poised for a sustainable recovery. Analysts predict that if these trends persist, the country may continue to post surpluses in the coming months, providing a much-needed cushion for economic stability and reducing reliance on external borrowing.

This narrowing of the current account deficit is a welcome relief for the government, which has been grappling with a balance of payments crisis and foreign exchange challenges. The marked improvement reflects an increasingly resilient economy, supported by external inflows and improved fiscal management.