Pakistan achieves surprising current account surplus in FY25

Pakistan has seen a significant shift in its current account dynamics as data released by the State Bank of Pakistan shows a remarkable reduction in the current account deficit for February 2025. Specifically, the deficit narrowed to only $12 million, down from $420 million in January 2025. This improvement comes against the backdrop of a surplus of $691 million recorded during the first eight months of the fiscal year 2025, which presents a stark contrast to a current account deficit of $1.7 billion during the same period last year. Such changes are indicative of fluctuating trends in Pakistan's economic landscape, especially concerning foreign transactions and remittances. The recent trends can be attributed to multiple factors including a significant increase in remittances, which surged by 32% over the previous year due to factors like the monthly influx during Ramazan. The higher remittance inflow has played a pivotal role in stabilizing the exchange rate and contributed to better foreign exchange reserves. Currently, the State Bank of Pakistan holds around $11 billion in reserves, with a target of reaching $13 billion by the end of FY25. However, it should be noted that the overall trade deficit has widened, with imports climbing almost $4 billion to $38.32 billion, contrasting against exports that saw a minimal rise to $21.8 billion from $20.35 billion in the same timeframe a year ago. Despite the current account surplus, the health of Pakistan's economy remains a topic of concern. The trade deficit in goods was recorded at $16.5 billion, notably higher than the $14 billion in the previous year, while the trade gap in services also saw an increase, amounting to $2.25 billion compared to last year's $1.7 billion. These widening deficits have raised substantial concerns about the sustainability of the current surplus, as the overall combined balance in goods and services showed a deficit of $18.755 billion compared to $15.787 billion a year ago. Expert analysis indicates that the negotiations with the International Monetary Fund (IMF) may be instrumental in unlocking inflows from other countries. However, Pakistan is still faced with considerable financial challenges, notably needing up to $5 billion for debt repayments and having a substantial $14 billion believed to have been rolled over by friendly nations, although official data regarding the rollover amount remains undisclosed. Understanding these dynamics could be crucial in predicting the future economic health of Pakistan as it navigates its fiscal challenges.