KARACHI:
In December 2024, Pakistan recorded its third consecutive month of current account (CA) surplus, which amounted to $582 million, reflecting a year-on-year increase of 109%. This positive trend is attributed to improved exports, strong remittances driven by mass migration of human resources, moderate international commodity prices and reduction in non-essential imports due to declining purchasing power.
However, challenges remain as the trade deficit widened, with imports exceeding $5 billion, exposing vulnerabilities in sustaining external account stability. Analysts warn that rising energy prices or a slowdown in remittances could affect the country’s external finances.
During the first half of fiscal year 2024-2025 (1HFY25), CA’s accumulated surplus reached $1.2 billion, a stark contrast to the $1.4 million deficit recorded in the same period last year. Export revenue rose to $3 billion in December, up 10% year-on-year and above the monthly average of $2.6 billion over the past year.
“The continued surplus in the current account in October, November and December 2024 reflects the right direction of economic policies,” Prime Minister Shehbaz Sharif said in a press release. The positive indicators reflect growing confidence in the government’s economic policies, he said, adding that programs like “Uraan” will further strengthen the economy.
JS Global attributed the surplus to strong remittance inflows, which exceeded the trade deficit, along with a relatively smaller services deficit. However, the revised figures broke the streak of monthly surpluses: the State Bank of Pakistan (SBP) reported deficits of $59 million in August and $21 million in September 2024. Despite these adjustments, the accumulated balance
CA surplus for 1SFY25 remains significantly positive at $1.2 billion.
Discrepancies in SBP and PBS figures
Export revenue rose to $3 billion in December 2024, a 10% year-on-year (y-o-y) increase, surpassing the monthly average of $2.6 billion over the past year, according to JS Global. Meanwhile, imports averaged $4.7 billion, resulting in a trade deficit of $1.7 billion for the month.
However, the SBP reported a trade deficit of $719 million smaller than that of the Pakistan Bureau of Statistics (PBS). This discrepancy highlights the different accounting methods used: SBP uses a cash-based approach, while PBS uses accrual-based accounting, which includes deferred payment settlements. For H1FY25, 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 payments to banks. However, new loans worth $733 million and foreign direct investment (FDI) inflows worth $199 million provided partial support. As a result, the overall balance of payments showed a smaller deficit of $73 million in December.
“Despite external debt repayments, the cumulative balance of payments surplus for the first half of FY25 amounts to $1.7 billion, reflecting resilience,” JS Global wrote. This surplus stabilized the SBP’s foreign exchange reserves at $11.7 billion, and import coverage improved to 2.8 months, the highest in almost three years.
Pakistan recorded a net FDI inflow of $170 million in December 2024, up from $219 million in November. However, net FDI inflows for the first half of FY25 grew 20% year-on-year to $1.3 billion, compared to $1.1 billion in the same period of the previous fiscal year.
SBP’s FY25 CA target is within reach
For fiscal year 2024-2025 (FY25), the SBP projects a CA balance within 0%-1% of GDP. JS Global noted that this goal is achievable, supported by a balanced trade deficit and steady remittance inflows.
Ali Najib, head of equity sales at Insight Securities, attributed the improvement in CA’s surplus to better exports, strong remittances, subdued global commodity prices and reduction in non-essential imports due to lower purchasing power. However, he noted that the trade deficit widened in December as imports surpassed $5 billion, underscoring the challenges in maintaining external stability.
“Pakistan’s dependence on remittances and global demand for its exports remains a key vulnerability,” Najib said. It warned that rising energy prices or declining remittances could affect future performance.
The surplus has helped bolster foreign exchange reserves, stabilize the rupee and improve investor confidence. Maintaining this momentum will require strategic diversification of exports, maintenance of remittance flows and effective management of imports. Addressing structural vulnerabilities will be crucial to ensuring long-term economic resilience, Najib added.
