Current Account Swings Back to Deficit in May Despite FY25 Surplus Streak
In May 2025, Pakistan recorded a current account deficit of $103 million, reversing the $47 million surplus in April, though still significantly better than the $235 million deficit in May 2024. While this dip may seem modest, it raises key questions about the structural health of Pakistan’s external account.
Despite this monthly setback, cumulative data for July–May FY25 shows a current account surplus of $1.8 billion, a dramatic shift from the $1.6 billion deficit posted in the same period last year. This marks Pakistan’s first annual surplus in 14 years, driven largely by an exceptional 26% surge in workers’ remittances, which climbed to $38.1 billion.
Remittances Shine as the Lone Pillar of Strength
Pakistan’s external position in FY25 owes its strength almost entirely to resilient diaspora inflows. The country recorded $3.9 billion in secondary income in May, up 12% year-on-year, with remittances making up the lion’s share.
“This growth in inflows has helped offset the impact of rising imports and sluggish exports,” noted AHL in its research commentary.
However, on a month-on-month basis, secondary income fell 13%, suggesting that even this lifeline could face volatility in coming months — particularly as Gulf economies adjust to lower oil prices and global remittance corridors begin to normalize post-COVID.
Trade Deficit Widening Again: A Persistent Drag
One of the most alarming signals in May’s data is the widening trade deficit, which ballooned to $3.2 billion from $2.2 billion a year earlier. For 11MFY25, the goods trade deficit hit $27 billion, up from $23 billion in 11MFY24.
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Imports surged by 11% to $54.1 billion
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Exports rose only 4% to $29.7 billion
This divergence, unless corrected, could erase the current account surplus if remittance growth falters.
May’s goods exports dropped sharply by 19% YoY to $2.4 billion, suggesting exporters are struggling with weak demand and a lack of diversification.
IT Exports: Resilient but Facing Headwinds
A key bright spot remains Pakistan’s IT sector, which posted $3.5 billion in exports over 11MFY25, up 19% year-on-year. However, the momentum slowed in May:
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Monthly exports stood at $329 million, down 1% YoY, but up 4% MoM
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This marked the first YoY dip after 19 straight months of growth
Despite the slowdown, IT remains a strategic asset. Analysts attribute its strength to:
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The SBP raising the foreign currency retention limit for exporters from 35% to 50%
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Allowing equity investments abroad through the newly introduced Equity Investment Abroad (EIA) category
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Improved rupee stability, which has encouraged exporters to repatriate a larger share of earnings
“This is a major policy shift aimed at giving IT firms more flexibility and international reach,” said Nasheed Malik of Topline Securities, referencing Pakistan’s participation in global events like LEAP 2025 (Saudi Arabia) and Web Summit Qatar 2025.
Primary Income and Services Deficit Continue to Haunt Balance
The primary income deficit, reflecting debt servicing and profit repatriation, stood at $7.9 billion in 11MFY25 — a persistent burden on the external account.
In May alone, this deficit narrowed 47% YoY to $777 million, down from $1.48 billion in May 2024. However, on a month-on-month basis, it increased 31%, indicating variability in debt servicing schedules.
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Meanwhile, the services sector remains in a net deficit of $2.7 billion, largely due to continued import demand for technical services, logistics, and consultancy — areas where Pakistan lacks a competitive domestic base.
FDI Inflows Decline, Undermining Structural Stability
Foreign Direct Investment (FDI) dropped to $1.98 billion in 11MFY25, signaling growing investor caution amidst political uncertainty, legal unpredictability, and macroeconomic fragility.
This underlines the non-structural nature of the current account surplus, which remains cyclical and fragile, not rooted in sustainable export expansion or long-term capital inflows.
“If imports rebound or remittance growth slows, the surplus could swiftly reverse,” a market observer warned.
Risks Ahead: Oil, Debt, and Policy Credibility
Pakistan’s external outlook for the remainder of FY25 and beyond hinges on several risk factors:
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Volatile oil prices could sharply widen the import bill
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Rising debt repayments, especially to multilateral lenders and commercial banks, threaten liquidity buffers
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Policy slippages ahead of the FY26 budget could damage sentiment and delay IMF engagements
Conclusion: A Delicate Balance That Needs Urgent Reforms
While the $1.8 billion current account surplus for 11MFY25 is a welcome change, the May deficit serves as a timely reminder of Pakistan’s structural vulnerabilities. Reliance on remittances, IT exports, and import compression will not be enough to ensure long-term sustainability.
To solidify gains, Pakistan must:
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Expand its export base, particularly in value-added manufacturing and services
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Deepen investment incentives for both domestic and foreign capital
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Maintain exchange rate stability and resist politically motivated economic interventions
The message is clear: without a structural shift in economic fundamentals, cyclical surpluses will remain fleeting.
