CA sees historic surplus of $1.2b

Pakistan's external account posted a remarkable turnaround in the third quarter of FY25, with the current account registering a surplus of $1.2 billion in March 2025. While the current account surplus is positive, it remains heavily dependent on remittances—a volatile source—rather than sustainable export growth.

March 2025 marked a historic milestone for Pakistan's external sector, with the country recording its highest-ever monthly current account surplus of $1.2 billion, said the Research Head of Arif Habib Limited (AHL), Sana Tawfiq. This was a significant jump from the surplus of $363 million in March 2024 and a sharp reversal from the deficit of $97 million recorded just a month earlier in February 2025.

The strong performance in March helped push the cumulative surplus for the first nine months of FY2025 (9MFY25) to $1.9 billion, a marked improvement compared to the $1.7 billion deficit posted during the same period last year.

"The record current account surplus of $1.2 billion in Mar'25 was driven by a receipt of highest ever remittances of $4.1 billion from Pakistani diaspora, slight rise in exports and a marginal decline in import bills due to stable oil prices," said Head of Sales, Insight Securities, Ali Najib. Improved services exports, particularly in IT and freelancing, also supported the surplus.

The overall 9MFY25 performance reflects sustained improvement in external balances, prudent fiscal management, and a narrowing trade gap, reversing last year's deficit, he said.

However, despite the optimism this brings, economic analysts caution that the improvement may be more circumstantial than structural, driven largely by temporary boosts in remittances and continued import suppression. This reliance on remittances raises concerns about the durability of the surplus, especially in the absence of significant improvements in the country's export performance.

Exports of goods rose by 10% year-on-year (YoY) to $2.8 billion in March 2025, compared to $2.5 billion in March 2024. On a month-on-month (MoM) basis, exports increased by 6% from $2.6 billion in February 2025. Similarly, exports of services grew by 5% YoY, reaching $744 million in March 2025, up from $709 million in the same month last year. On a MoM basis, services exports were up by 4% from $713 million in February.

Technology exports remained a key growth driver within the services sector, registering a 12% YoY increase to $342 million in March 2025, contributing 46% to total services exports.

On the import side, goods imports rose by 8% YoY to $4.95 billion in March 2025, up from $4.57 billion in March 2024. However, imports declined by 2% MoM from $5.06 billion in February 2025. Imports of services also grew by 7% YoY to $970 million compared to $908 million in the same period last year, though they remained nearly flat on a monthly basis from $973 million in February. Key import categories for March included machinery ($822 million) and petroleum products ($1.2 billion).

Despite some improvement in trade figures, Pakistan continues to grapple with persistent trade imbalances. The goods trade deficit stood at a substantial $18.7 billion, reflecting deep-rooted structural issues in export competitiveness.

Meanwhile, the services sector failed to provide a cushion, with the services trade deficit widening to $2.318 billion, highlighting underperformance in key areas such as IT, tourism, and logistics.

Additionally, the primary income account recorded a $6.524 billion outflow — mainly due to profit repatriation by foreign companies — further eroding the country's foreign exchange reserves. Without diversification and value addition in exports, these trade deficits will continue to exert pressure on the balance of payments.

The financial account also showed troubling volatility. Net Foreign Direct Investment (FDI) fell sharply to -$1.725 billion, underscoring investor hesitancy amid political uncertainty and macroeconomic instability.

Although portfolio investment posted a positive inflow of $329 million, these flows remain highly sensitive and unstable. More concerning is the rise in government debt liabilities — particularly borrowing from the International Monetary Fund (IMF) and other multilateral lenders — which contributed to a $2.5 billion increase in net liabilities. This trend highlights the growing risks to debt sustainability and the unsustainable nature of relying on debt to prop up reserves.

A revival in FDI will require a comprehensive and credible policy that has a mandate from the democratic institutions instead of arbitrary platforms established on the whims of powerful individuals and other reforms to improve investor confidence.

Foreign exchange reserves held by the State Bank of Pakistan (excluding CRR) rose to $10.734 billion by March 2025, offering some breathing space. However, this figure remains below safe thresholds when measured against import coverage. The country's continued reliance on IMF funding — evidenced by a $528 million drawdown — underlines its vulnerability and dependence on external bailouts. While the upward trend in reserves is encouraging, the recovery remains fragile, and Pakistan's external buffers are insufficient to absorb major economic shocks.