By Farooq Awan

Pakistan's external sector strengthened further during FY2025-26 as the country recorded a current account surplus of $255 million during July-May, supported by record workers' remittances, robust growth in information technology (IT) exports and improved foreign exchange reserves.

According to the Finance Division's Monthly Economic Update & Outlook (June 2026), the current account recorded a $459 million surplus in May 2026, turning the cumulative balance into a $255 million surplus during the first 11 months of the fiscal year. This shift reflects the improving resilience of the country's external account.

The report states that Pakistan's goods and services exports remained broadly stable at $37.4 billion during July-May FY2025-26 compared with $37.5 billion during the corresponding period last year. While merchandise exports remained under pressure, the services sector recorded encouraging growth, largely driven by the continued expansion of IT exports.

According to the Finance Division, IT services exports increased by 20.4% to $4.2 billion, providing strong support to Pakistan's overall services export performance. The report highlights the information technology sector as one of the country's fastest-growing export industries and an increasingly important contributor to foreign exchange earnings.

Goods and services imports increased to $69.6 billion during July-May FY2025-26 from $64.5 billion a year earlier. Goods imports reached $58.5 billion, pushing the combined goods and services trade deficit to $32.2 billion, up from $27 billion during the same period last year.

The report notes that among major export categories, garments recorded a 5.4% increase, bedwear grew by 2.2%, while knitwear exports rose by 1%. On the import side, higher purchases of petroleum crude increased by 27.3%, petroleum products by 2.9%, and palm oil by 10.8%, reflecting stronger domestic demand and changing international commodity prices.

Workers' remittances continued to play a pivotal role in strengthening Pakistan's external position. According to the report, remittance inflows reached a record $4.3 billion in May 2026, the highest monthly inflow ever recorded. Cumulative remittances increased by 9.2% year on year to $38.1 billion during July-May FY2025-26. Saudi Arabia remained the largest source of remittances, accounting for 23.5% of total inflows, followed by the United Arab Emirates with 21%.

Foreign direct investment (FDI) also remained supportive of the external account. Total FDI inflows amounted to $3.3 billion during the reporting period, while net FDI inflows stood at $1.6 billion. China remained Pakistan's largest foreign investor, contributing $819 million, followed by Hong Kong with $308.4 million. Sector-wise, the power sector attracted $871.4 million, while financial services received $718.5 million, making them the leading destinations for foreign investment.

The report notes that portfolio investment continued to reflect cautious investor sentiment, with private portfolio investment recording net outflows of $566 million and public portfolio investment registering net outflows of $579.6 million during the period. Despite these outflows, improvements in other components of the external account helped maintain overall stability.

Pakistan's external buffers also strengthened during the fiscal year. As of June 19, 2026, the country's total foreign exchange reserves stood at $21.5 billion, including $15.9 billion held by the State Bank of Pakistan. According to the Finance Division, stronger reserves, together with sustained remittance growth and expanding IT exports, are expected to reinforce external sector resilience and improve the country's ability to withstand external shocks.

The report concludes that continued growth in remittances, expansion of IT exports and improving foreign exchange reserves are expected to support Pakistan's balance of payments during FY2026-27. Together with easing global energy prices and ongoing macroeconomic reforms, these factors are likely to strengthen external sector stability and contribute to sustainable economic growth.

Credit: INP-WealthPk