Pakistan swings back to $75m current account surplus in August

KARACHI: Pakistan’s current account returned to a surplus in August after three straight months of deficits, thanks to robust remittances and a slightly reduced trade gap.

The current account surplus was $75 million in August, compared with a deficit of $246 million in the previous month and a shortfall of $152 million in August 2023, according to central bank data published on Wednesday.

In the first two months of FY2025, Pakistan posted a current account deficit of $171 million, down 81 per cent from a year ago.This surplus provides some relief to Pakistan, which is expecting approval from the executive board of the International Monetary Fund for its new $7 billion loan programme at the meeting scheduled for September 25. The IMF-supported 37-month Extended Fund Facility (EFF) is crucial for the country’s medium-term external stability.

The healthy funds sent home by Pakistani citizens working abroad and a slight decline in the trade gap contributed to the current account surplus. However, analysts have noted that the August surplus could have been larger if there had been no deviations in the trade numbers reported by the Pakistan Bureau of Statistics and the State Bank of Pakistan over the last two months.

Remittances increased to $2.9 billion in August, up 40 per cent from a year earlier. These inflows rose by 44 per cent to $5.9 billion in July-August FY25. However, remittances fell by 2.0 per cent on a month-on-month in August.

“Current account surplus is mainly due to slight improvement in the trade deficit as well as continued strong momentum in remittances,” said Mustafa Mustansir, the head of research at Taurus Securities.

Historically, the PBS reported a higher trade deficit compared to the SBP due to different recording methods. The SBP uses free onboard and payment-based data, while the PBS follows port-based clearance data, which is cost and freight, as noted by Arif Habib Limited.

In the last two months, the SBP reported a trade deficit that is 20 per cent higher than the PBS’s for July-August FY25. According to the PBS, the trade gap narrowed by 7.18 per cent month-on-month and 15.94 per cent year-on-year to $1.772 billion in August. However, the SBP’s data showed that the trade shortfall rose by 23 per cent YoY to $2.227 billion in August but dropped by 9.0 per cent on MoM.

The SBP’s data showed that imports of goods rose by 11 per cent YoY and dropped 2.0 per cent MoM to $4.714 billion in August. Exports increased by 3.0 per cent YoY and 5.0 per cent MoM to $2.488 billion.

The SBP reported higher imports of textiles, metals, machinery and petroleum than the PBS. Besides, the SBP reported lower exports of textiles, food, and other categories than the PBS.Due to favourable commodity prices and subdued domestic demand, analysts anticipate that Pakistan will run a current account surplus in the months to come.

“We expect CAD in FY25 to clock-in around 1.0 per cent of the GDP. The final number could be lower if oil prices stay on the lower side or drop further,” Mustansir added.In a post-monetary policy analysts briefing last week, the SBP’s governor Jameel Ahmad stated that he expects the momentum of remittances to continue due to a lower spread between the formal and informal markets.

He also anticipates that the current account deficit will stay within the projected range of zero to 1.0 per cent of the GDP in FY25. This contained current account deficit, combined with the expected inflows under the IMF programme, is expected to further strengthen the SBP’s foreign exchange reserves.

The governor informed analysts that the central bank’s foreign exchange reserves are projected to reach $12 billion by March 2025 and $13 billion by June 2025.As of March 2025, total external debt repayments amount to $14.1 billion. Out of this, $8.3 billion will be rolled over or refinanced, and $5.8 billion will be paid off, according to the SBP.As of September 12, the SBP has repaid $4 billion, including $2.3 billion in rollovers and a net payment of $1.7 billion.