Current account logs surplus for second consecutive month

KARACHI: Pakistan’s current account posted a surplus for the second straight month in September, mainly due to a significant reduction in the trade deficit for goods and services.

The surplus was $119 million, the largest since April 2024, compared with a surplus of $29 million in August and a deficit of $218 million in September 2023, according to data from the State Bank of Pakistan on Monday.

During the first quarter of FY25, the country’s current account deficit decreased to $98 million, down 92 per cent from a year earlier.“A significant reduction in the trade deficit for goods and services is the main driver of the sequential improvement in the current account deficit,” said Awais Ashraf, director research at AKD Securities Limited.

“The overall growth in exports of goods and services has outweighed the decline in remittances and the increase in interest and dividend repatriation,” Ashraf said and added interest and profit repatriation saw a notable rise, nearly matching the average monthly payments recorded during fiscal year 2024.

The SBP’s data revealed that the trade deficit for goods dropped by 8.0 per cent month-on-month to $2.046 billion in September. However, the trade gap for goods increased by 37 per cent year-on-year (YoY), widening by 26 per cent to $6.723 billion in the first three months of the current fiscal year. The trade deficit for services fell to $226 million in September, marking a 37 per cent decrease from a year ago and a 20 per cent decline month-on-month. The deficit fell by 22 per cent to $699 million in July-September FY25.

Exports of goods hit a record-high quarterly level of $7.5 billion in July-September FY25, increasing by 8.0 per cent year-on-year and 7.0 per cent month-on-month to $2.645 billion in September. Imports totalled $4.691 billion, increasing by 19 per cent month-on-month but remaining flat compared with the previous month. Exports of services rose to $657 million in September, showing a 17 per cent increase from a year earlier and a 6.0 per cent increase from the previous month. Service imports fell to $883 million, down 4.0 per cent from a year earlier and 2.0 per cent from the previous month.

Pakistan’s remittances from its citizens working abroad rose to $2.849 billion in September, up 29 per cent from a year earlier, but declining by 3.0 per cent from the previous month.

The latest report from the SBP stated that the International Monetary Fund’s $7 billion Extended Fund Facility (EFF) programme is expected to improve the country’s external account position, enhance sovereign credit rating, and increase investor confidence. Pakistan has already received the first instalment of $1.03 billion from the IMF under the EFF programme.

Furthermore, Pakistan is likely to benefit from a favourable global economic environment, with decreasing inflation in advanced economies and consistent global economic growth. Although there are potential upward risks to global commodity prices due to rising geopolitical tensions, current commodity prices remain low, according to the SBP’s report.

The SBP expects the current account deficit to clock within the range of zero to 1.0 per cent of GDP in FY25.The IMF predicts a current account deficit of $3.57 billion in FY25, which is equivalent to 0.9 per cent of GDP.

As of October 11, the SBP’s foreign exchange reserves totalled $11.02 billion, enough to cover more than two months of imports.According to IMF data, Pakistan’s gross financing requirement for FY25 is $18.8 billion. In the last nine years, the average gross financing requirement has been $25 billion. The significant decrease in the gross financing requirement for FY25 is due to a contained current account deficit and relatively lower repayments.

Similarly, the IMF has reduced Pakistan’s gross financing requirement by a cumulative $4.2 billion over the next three years (FY25-28) and by $5.2 billion over the next two years, anticipating a decrease in the current account deficit.