Current account surplus termed historic achievement

KARACHI:

Pakistan posted a $1.9 billion current account surplus in July-April 2024-25, reversing a deficit of $1.3 billion in the same period of last year, according to the Economic Survey released by the Ministry of Finance on Monday, which called it a historic achievement, made only once before in FY 2003, when the surplus reached $4.1 billion.

At a press conference, Finance Minister Muhammad Aurangzeb commented, "In July-April FY25, we had a current account surplus of $1.9 billion due to improvement in overall exports."

The surplus came also on the back of remittances, which hit a historic high in March 2025, and a sharp rise in IT exports, bolstering the external account as the trade balance remained in the red.

The report showed that the trade balance in goods recorded a deficit of $21.3 billion ($18 billion last year), fuelled by an 11.8% rise in imports that outpaced export growth of 6.8%. Similarly, the services account deficit widened to $2.5 billion ($2.4 billion last year) as imports grew 9.3%, outpacing export growth of 7.9%.

The primary income account deficit rose $803 million to $7.1 billion ($6.3 billion last year) owing to increased dividend repatriation and interest payments.

In contrast, remittances hit a historic monthly high of $4.1 billion in March. Overall, remittances grew 31% to $31.2 billion in July-April FY25 against $23.9 billion last year, supported by the government and State Bank-led structural reforms.

"Remittances will reach $37-38 billion in this fiscal year. Two years ago, the inflows were around $27 billion," the finance minister remarked. "Some 814,000 accounts have been opened by the Pakistani diaspora under the Roshan Digital Account," he added. Moreover, the financial account recorded a net outflow of $1.6 billion during July-April FY25, a reversal from the net inflow of $4.2 billion last year. The decline was mainly due to higher government debt repayments and a sharp drop in net liability, which fell to negative $3.2 million from $2.6 billion last year, indicating a marked slowdown in external borrowing, the report mentioned.

Net foreign direct investment (FDI) amounted to $1,785 million during July-April FY25, slightly down from $1,835 million last year, reflecting a 2.7% decrease. The survey highlighted heightened global risk aversion amid geopolitical tensions and economic uncertainty, alongside a slowdown in global trade and investment flows affecting developing economies, and declining China's outbound investments as key reasons for the drop in the FDI.

The current account surplus bolstered foreign exchange reserves to $16.64 billion ($11.50 billion with the State Bank and $5.14 billion with commercial banks) by May 27, 2025, aiding exchange rate stability. The average exchange rate for July-April FY25 was Rs278.72/$.

In its review, Arif Habib Limited (AHL) remarked that the current account deficit was projected at a sustainable 0.8% of GDP over the medium term, aided by moderating energy imports, IT export growth and skilled labour remittances.

US tariffs on Pakistan

As the international community grapples with the effects of Trump's tariffs and their potential economic fallout, the evolving situation poses downside risks alongside opportunities for Pakistan's exports.

At present, Pakistan lies at the 33rd position in terms of trade surplus with the US as its exports to Washington amounted to 17% of its total exports. In 2024, exports from the US to Pakistan totalled $2.14 billion while imports stood at $5.47 billion, said the Economic Survey.

Considering Pakistan's lower reciprocal tariffs, which make the country a more accessible market for the US, there is a possibility that the country's trade will not be adversely impacted by the US tariffs and it will be able to maintain stable trade ties while larger economies will bear the brunt of economic pressure.

Pakistan imposes a lower trade-weighted average tariff on the import of US goods (7.3%) compared to US tariffs on Pakistan's exports (9.9%). Under the Trump administration, the US has levied a 30% additional tariff on Pakistan.

However, competitor countries such as Cambodia (49%), Vietnam (46%), China (145% and above) and Bangladesh (37%) face significantly higher tariffs, giving Pakistan an edge. However, India will pay a lower tariff of 27%.

In FY24, according to the report, Pakistan imported over $700 million worth of raw cotton, the largest import item from the US. This number is expected to increase further in the ongoing year.

By sourcing high-quality cotton from the US and exporting back value-added finished goods, Pakistan has built a mutually beneficial trade cycle. This model not only boosts industrial competitiveness but also strengthens long-term access to the US market.

The government is engaged in consultations with the private sector to devise policies that will increase cotton imports from the US, solidifying Pakistan's role as a reliable textile supplier, the report stated, adding that this comparatively open market profile strengthens Pakistan's case for preferential treatment or improved market access.

ZOYA MEDINA