Qudsia Bano

Pakistan’s external sector came under renewed strain as the current account deficit widened to 624 million dollars during July-August FY26, compared with 430 million dollars in the same period of FY25, according to the latest balance of payments data released by the State Bank of Pakistan.

The increase in the deficit was mainly driven by a widening gap in trade in goods and services. Imports during the two-month period stood at over 10.4 billion dollars, while exports were recorded at around 8.8 billion dollars. This mismatch resulted in a sizeable trade deficit, with August alone contributing a shortfall of 1.6 billion dollars in goods. Services also continued to show net outflows, further adding pressure on the current account.

Primary income outflows remained substantial, with the deficit in this category reaching nearly 1.5 billion dollars during July-August FY26. These payments largely represent profits and interest paid on foreign investments.

On the positive side, remittances from overseas Pakistanis provided some cushion, rising to 6.35 billion dollars in the two months, higher than 5.94 billion dollars in the same period last year. The increase in remittance inflows helped offset part of the trade imbalance but was not sufficient to prevent the overall deficit from widening.

The Real Effective Exchange Rate (REER) index, which measures the value of the rupee against a basket of currencies adjusted for inflation, edged up marginally to 100.1 in August 2025 compared to 100.0 in July 2025. The slight appreciation indicates relative stability in the rupee’s competitiveness despite persistent external pressures.

The widening deficit underscores the challenge of managing the external account in the face of financing needs and repayment obligations. Sustained growth in exports, prudent management of imports, and consistent remittance flows will be critical in easing pressure on the balance of payments in the coming months.

Credit: INP-WealthPk