Record remittances and stronger reserves offset by rising imports, lower exports, weaker foreign investment and a current account deficit.
ISLAMABAD: Pakistan’s external sector came under increasing pressure during fiscal year (FY) 2025-26 as a sharp rise in imports, declining exports, weaker foreign investment and a return to a current account deficit outweighed the positive impact of record workers’ remittances and stronger foreign exchange reserves.
Official data released by the finance minister for FY2025-26 show a mixed external sector performance, highlighting persistent challenges in maintaining balance of payments stability despite improvements in remittance inflows and reserve levels.
Record Remittances Provide Support
Workers’ remittances reached an all-time high of $41.6 billion during FY2025-26, compared with $38.3 billion in the previous fiscal year, representing an increase of 8.6%.
On a monthly basis, remittances rose to $3.5 billion in June 2026 from $3.4 billion in June 2025, reflecting a 2.0% year-on-year increase.
The continued growth in remittances provided crucial support to Pakistan’s external account and helped cushion the impact of widening trade and investment imbalances.
Exports Decline While Imports Accelerate
Pakistan’s merchandise exports weakened during the fiscal year, with free-on-board (FOB) exports declining 4.6% to $30.8 billion, compared with $32.3 billion in FY2024-25.
However, export earnings remained broadly stable in June, standing at $2.60 billion against $2.59 billion recorded in the corresponding month last year.
Imports, meanwhile, increased significantly. FOB imports climbed 9.0% to $64.5 billion during FY2025-26 from $59.1 billion a year earlier.
The monthly import bill rose even more sharply, increasing 22.5% to $6.1 billion in June 2026, compared with $5.0 billion in June 2025, indicating stronger domestic demand and higher payments for imported goods.
Current Account Returns to Deficit
The country’s current account balance shifted from a surplus of $1.838 billion in FY2024-25 to a deficit of $139 million during FY2025-26, reflecting growing pressure from higher imports and weaker export performance.
On a monthly basis, however, the current account showed some improvement, with the deficit narrowing to $649 million in June 2026 from $737 million in June 2025.
Foreign Investment Declines
Foreign investment recorded a substantial decline during FY2025-26.
Foreign Direct Investment (FDI) fell 33.9% to $1.64 billion, compared with $2.48 billion in the previous fiscal year.
FDI inflows during June 2026 amounted to just $13.5 million, down sharply from $210 million recorded in June 2025.
Portfolio investment also remained under pressure, registering a net outflow of $1.19 billion during FY2025-26, compared with an outflow of $730.8 million a year earlier.
Consequently, total foreign investment declined to $450.6 million, significantly lower than $1.75 billion recorded in FY2024-25.
Foreign Exchange Reserves Strengthen
Despite weaker investment inflows, Pakistan’s foreign exchange reserves improved over the year.
Total reserves increased to $22.7 billion as of July 17, 2026, compared with $19.9 billion on July 18, 2025.
The reserve position comprised:
• State Bank of Pakistan (SBP): $17.3 billion, up from $14.4 billion.
• Commercial banks: $5.4 billion, compared with $5.5 billion a year earlier.
The higher reserve level helped support external stability despite mounting pressures on the balance of payments.
Rupee Posts Modest Appreciation
The Pakistani rupee appreciated slightly against the US dollar during the year.
The exchange rate improved from Rs283.05 per US dollar on July 29, 2025, to Rs277.80 per US dollar on July 29, 2026, reflecting relative stability in the foreign exchange market.
Mixed Outlook for External Sector
The latest data indicate that Pakistan’s external sector delivered mixed results during FY2025-26. Record remittances and stronger foreign exchange reserves provided important support, but falling exports, rising imports, lower foreign investment and the return of the current account to deficit underscore the challenges facing the economy. Going forward, policymakers are expected to prioritise export growth, attract foreign investment and maintain external sector stability to strengthen the country’s balance of payments.