C/A wobbles despite strong FY25
The current account deficit peaked at $17.4 billion during the just ended fiscal year as against deficit of $2.8 billion in the preceding year. Photo: file
The current account surplus in Pakistan, driven by remittances, has been on a declining trajectory, as in April 2025, it fell sharply to $12 million, a significant decrease from $315 million in April 2024 and $1.2 billion in March 2025.
In April 2025, Pakistan's current account surplus dropped sharply, primarily due to rising imports and a 22% month-on-month decline in remittances, said Ali Najib, Head of Sales at Insight Securities.
However, despite the monthly slowdown, the cumulative surplus for the first 10 months of FY 2025 (July-April) reached $1.9 billion, a major turnaround from the $1.34 billion deficit recorded during the same period of FY24, reflecting improved external inflows and remittance strength, according to the latest balance of payments data released by the State Bank of Pakistan (SBP).
"The last time Pakistan saw a full-year current account surplus was over 14 years ago, making this a notable development for a country long beset by external imbalances," wrote Sana Tawfik and Rao Aamir Ali of Arif Habib Limited (AHL) Research in a report.
Remittances lead the way
The primary driver behind the turnaround is a sharp increase in workers' remittances, which grew 31% year-on-year (YoY) to $31.2 billion in 10MFY25. In April alone, remittances clocked in at $3.2 billion, up 13% YoY. The largest inflows came from Saudi Arabia ($728 million, up 2%), the UAE ($658 million, up 21%) and the UK ($535 million, up 33%).
Analysts view this as a crucial cushion against rising imports and investment-related outflows. "The surge in remittances has been instrumental in not just offsetting the trade deficit but in achieving an overall current account surplus," AHL noted in its report.
Looking ahead, the brokerage expects FY25 to close with a surplus of $1.6 billion, primarily due to expected full-year remittance inflows of $37.4 billion, representing a 24% YoY growth.
Trade deficit expands
While the overall external position has improved, the trade balance remains a structural concern. Pakistan's goods imports rose 12% YoY to $48.6 billion during 10MFY25. In April alone, imports rose 18% YoY and 6% month-on-month (MoM) to $5.2 billion, led by petroleum ($1.2 billion), machinery ($792 million) and chemicals ($790 million).
The sharp volatility highlights reliance on remittances and external inflows, posing risks to sustained balance of payments stability, said Najib.
Goods exports, though higher YoY at $27.3 billion, fell 1% in April 2025 compared to the same month of last year and declined 6% from March 2025. As a result, the goods trade deficit widened 19% YoY to $21.3 billion in the 10-month period.
The services sector showed modest improvement. Services exports rose 9% YoY to $6.9 billion in 10MFY25, supported by technology exports, which grew 21% YoY to $3.14 billion, accounting for 44% of total services exports. However, the overall trade balance in goods and services posted a combined deficit of $23.8 billion, up from $20.4 billion in the same period of last year.
The primary income account, largely reflecting interest and dividend payments on foreign debt and investment, posted a deficit of $7.13 billion in 10MFY25, up 13% YoY. In April, the deficit stood at $603 million, slightly higher than April 2024, but down 8% from March.
On the other hand, the secondary income balance, which includes remittances, showed a robust 30% YoY increase to $32.8 billion, playing a pivotal role in driving the current account surplus.
Foreign direct investment (FDI), however, remained muted and volatile. Net FDI for April was $141 million, up from $26 million in March. Cumulatively, the net FDI declined 3% YoY to $1.79 billion in 10MFY25. AHL noted that while there has been some pickup in recent months, FDI inflows remain concentrated and lack diversification across sectors.
The financial account, which includes foreign investment and external borrowing, registered a surplus of $1.6 billion in 10MFY25 compared to a deficit of $4.2 billion last year, signalling an improved capital flow environment.
Optimus Capital Research Head Maaz Azam noted that in April 2025, the trade deficit reported by the SBP was lower by $762 million at $2,626 million, compared to figures released by the Pakistan Bureau of Statistics (PBS).
According to Azam, this discrepancy stems from differences in export and import reporting, with the SBP showing exports higher by $470 million at $2,611 million and imports lower by $292 million at $5,237 million, relative to the PBS data. This variance significantly influenced the external account outcome, resulting in an almost flat current account balance, "contrary to market expectations for a slight deficit."