Farooq Awan

Pakistan’s external account shifted into a deficit during the first half of FY2026, with the current account posting a deficit of $1.17 billion in Jul–Dec, as rising import demand outpaced relatively flat export performance, according to the Monthly Economic Update and Outlook issued by the Finance Division.

Official data show that the current account outcome marks a reversal from a surplus of $0.96 billion recorded in the same period of the previous fiscal year. The deterioration in the external balance was primarily driven by a widening trade deficit, reflecting increased imports amid a pickup in domestic economic activity.

During Jul–Dec FY2026, total goods and services exports were recorded at $20.3 billion, broadly unchanged from $20.4 billion in the corresponding period last year. Goods exports stood at $15.5 billion, while services exports were supported mainly by information technology–related services. However, the overall export performance was insufficient to offset the sharp increase in imports during the period.

Total goods and services imports rose to $37.8 billion in Jul–Dec FY2026, compared to $33.5 billion in the same period last year. Goods imports alone amounted to $31.3 billion, reflecting increased demand for energy, raw materials, and intermediate goods as economic activity gained momentum. As a result, the trade deficit in goods and services widened to $17.6 billion from $13.1 billion in the corresponding period of last year.

Disaggregated trade data indicate that several major import categories recorded notable increases. According to Pakistan Bureau of Statistics figures cited in the report, imports of petroleum products rose by 5.1 percent, petroleum crude by 11.2 percent, and palm oil by a significant 28.8 percent during the period under review. The rise in energy and edible oil imports contributed substantially to the expansion of the import bill.

On the export side, modest gains were recorded in selected textile categories. Exports of knitwear increased by 4.1 percent, garments by 4.9 percent, and bedwear by 1.9 percent during Jul–Dec FY2026. However, these increases were not sufficient to drive a meaningful expansion in overall export earnings.

The Finance Division noted that the widening current account deficit reflects rising import demand driven by improving economic activity, particularly in manufacturing and agriculture. The report indicated that the recovery in large-scale manufacturing and higher input usage in agriculture have led to increased imports of raw materials, machinery, and energy.

Despite the current account deficit, the report highlighted that the external position remained manageable due to supportive inflows through other channels. These include steady remittance inflows and services exports, which helped cushion external pressures during the period.

The Finance Division said that while the current account is expected to remain in deficit in the coming months, the overall external outlook remains stable, provided that export performance improves and remittance inflows remain robust. The report emphasised the importance of export diversification and value addition to reduce reliance on imports and narrow the trade gap over the medium term.

According to the outlook, continued monitoring of import growth and export performance will be critical to maintaining external sector stability during FY2026, particularly amid global economic uncertainty and fluctuating commodity prices.

The shift of the current account into deficit during Jul–Dec FY2026 underscores the close link between domestic economic recovery and external sector dynamics, highlighting the need for balanced growth to ensure sustainable external stability.

Credit: INP-WealthPk