$582 million C/A surplus posted

KARACHI:

In December 2024, Pakistan recorded its third consecutive month of a current account (CA) surplus, amounting to $582 million, reflecting a 109% year-on-year increase. This positive trend is attributed to improved exports, robust remittances driven by mass human resource migration, moderate international commodity prices, and reduced non-essential imports due to declining purchasing power.

However, challenges remain as the trade deficit widened, with imports surpassing $5 billion, exposing vulnerabilities in sustaining external account stability. Analysts warn that rising energy prices or a slowdown in remittances could strain the country's external finances.

For the first half of fiscal year 2024–2025 (1HFY25), the cumulative CA surplus reached $1.2 billion, a sharp contrast to the $1.4 million deficit recorded in the same period last year. Export revenues climbed to $3 billion in December, marking a 10% year-on-year growth and surpassing the monthly average of $2.6 billion over the past year.

"The continuous surplus in the current account for October, November, and December 2024 reflects the right direction of economic policies," Prime Minister Shehbaz Sharif stated in a press release. The positive indicators reflect growing trust in the government's economic policies, he said, adding that programmes like "Uraan" will further strengthen the economy.

JS Global attributed the surplus to robust remittance inflows, which outpaced the trade deficit, along with a relatively lower services deficit. Revised figures, however, disrupted the streak of monthly surpluses, with the State Bank of Pakistan (SBP) reporting deficits of $59 million for August and $21 million for September 2024. Despite these adjustments, the cumulative

CA surplus for 1HFY25 remains significantly positive at $1.2 billion.

Discrepancies in SBP, PBS figures

Export earnings rose to $3 billion in December 2024, a 10% year-on-year (YoY) increase, exceeding the monthly average of $2.6 billion over the past year, according to JS Global. Meanwhile, imports averaged $4.7 billion, resulting in a $1.7 billion trade deficit for the month.

However, SBP reported a trade deficit $719 million lower than the Pakistan Bureau of Statistics (PBS). This discrepancy highlights the differing accounting methods used—SBP employs a cash-based approach, while PBS uses accrual-based accounting, which includes deferred payment settlements. For 1HFY25, the trade deficit figures reported by SBP and PBS remain close, at $11.5 billion and $11.2 billion, respectively.

Negative balance of payments

The financial account recorded a deficit in December 2024 due to debt repayments to banks. However, fresh loans of $733 million and foreign direct investment (FDI) inflows of $199 million provided partial support. As a result, the overall balance of payments (BoP) showed a minor deficit of $73 million for December.

"Despite external debt repayments, the cumulative BoP surplus for 1HFY25 stands at $1.7 billion, reflecting resilience," JS Global wrote. This surplus stabilised SBP's foreign exchange reserves at $11.7 billion, with import cover improving to 2.8 months, the highest in nearly three years.

Pakistan recorded a net FDI inflow of $170 million in December 2024, down from $219 million in November. However, net FDI inflows for 1HFY25 grew by 20% YoY to $1.3 billion, compared to $1.1 billion in the same period last fiscal year.

SBP FY25 CA target within reach

For fiscal year 2024–2025 (FY25), the SBP projects a CA balance within 0%–1% of GDP. JS Global noted that this target is achievable, supported by a balanced trade deficit and steady remittance inflows.

Ali Najib, Head of Equity Sales at Insight Securities, attributed the improved CA surplus to better exports, strong remittances, moderate global commodity prices, and curtailed non-essential imports due to reduced purchasing power. He noted, however, that the trade deficit widened in December as imports surpassed $5 billion, underscoring challenges in sustaining external stability.

"Pakistan's reliance on remittances and global demand for its exports remains a key vulnerability," Najib remarked. He cautioned that rising energy prices or declining remittances could affect future performance.

The surplus has helped bolster foreign exchange reserves, stabilise the rupee, and enhance investor confidence. Sustaining this momentum will require strategic export diversification, maintaining remittance inflows, and managing imports effectively. Addressing structural vulnerabilities will be crucial for ensuring long-term economic resilience, Najib added.