Pakistan’s current account deficit narrowed significantly to $98 million in August, providing some relief to the country’s external account despite continued pressure from higher oil prices and a widening trade deficit.
According to data released by the State Bank of Pakistan (SBP), the current account deficit stood at $98 million in August, compared with $342 million during the same month of the previous fiscal year. The deficit also declined from $445 million recorded in July, the first month of the current fiscal year.
For the first two months of the fiscal year, Pakistan’s cumulative current account deficit reached $543 million, down from $853 million during the corresponding period last year. The improvement reflects a stronger external position compared with the previous year, although risks remain from rising import costs and global economic developments.
Pakistan’s trade position remains a key challenge. The country’s trade deficit widened by 18.1 per cent year-on-year during July and August to $7.12 billion. The increase was largely driven by faster growth in imports compared with exports.
Merchandise exports reached $5.445 billion during the first two months of the fiscal year, compared with $5.238 billion during the same period a year earlier. Imports increased to $11.635 billion from $10.449 billion.
The services sector, however, provided some support to the external account. The services trade deficit declined to $562 million during the first two months, compared with $753 million in the corresponding period last year.
Remittances also remain an important source of foreign exchange for Pakistan. A significant portion of the country’s remittance inflows comes from Gulf countries, making regional economic conditions an important factor for future inflows. So far, remittances during the first two months of the fiscal year have remained higher than the previous year, supporting the balance of payments and foreign exchange position.
Foreign direct investment (FDI) also recorded strong growth. SBP data showed that FDI inflows increased by 80.5 per cent to $315.9 million in August, compared with $175 million in the same month last year.
During the first two months of the fiscal year, FDI rose by 24 per cent to $494.5 million from $398.6 million a year earlier. China remained the largest source of FDI in August, contributing $113 million. Canada followed with $50 million, while the United Arab Emirates invested $48 million.
China’s total investment during the first two months reached $176 million, compared with $120.7 million during the corresponding period last year.
Despite the improvement in the current account and stronger FDI inflows, Pakistan continues to face external-sector risks. Higher international oil prices could increase the country’s import bill, while the widening trade deficit may place additional pressure on the balance of payments.
The latest figures indicate an improvement in Pakistan’s external account during the opening months of the fiscal year, but the sustainability of the trend will depend on export growth, remittance inflows, investment, import costs and developments in international commodity markets.
