Farooq Awan

Pakistan posted a current account surplus for the first time in fourteen years during FY25, driven by record-high remittances, stable imports, and strong foreign exchange reserves that helped the rupee stabilize and restored investor confidence.

According to the State Bank of Pakistan’s Annual Report 2024-25, the current account balance turned positive by US$2.1 billion, a dramatic turnaround from a deficit of US$2.07 billion a year earlier. The surplus was also the largest in twenty-two years, reflecting improved policy coordination, a stable exchange rate, and resilient inflows from Pakistanis working abroad.

The report attributes the improvement to both domestic and external factors. On the domestic front, a sharp fall in inflation, improved confidence, and incentives for formal remittance channels encouraged higher inflows. Globally, stronger growth in Gulf economies and lower living costs in host countries boosted the remitting capacity of Pakistani workers.

Workers’ remittances jumped from US$30.25 billion in FY24 to US$38.3 billion in FY25, an increase of 26.5 percent, making them the single largest source of foreign exchange. The SBP and the government jointly introduced measures to reduce transaction costs and reward transfers through formal banking channels, including digital remittance platforms and wallet-based payments.

At the same time, the SBP’s foreign exchange reserves nearly doubled to US$14.5 billion, up from US$9.4 billion the previous year. The buildup came through a combination of IMF program inflows, bilateral financing from China and Saudi Arabia, and fresh support from the World Bank and the Asian Development Bank following the approval of the new Extended Fund Facility in July 2024.

The report points out that the stability of the rupee was a major confidence booster. After gaining modestly against the dollar during FY24, the exchange rate remained broadly stable in FY25, depreciating by only 1.9 percent compared to over 28 percent in FY23. The calm currency market helped control imported inflation, making it easier for the central bank to pursue disinflation.

Exports, however, grew modestly by 4.3 percent, held back by sluggish global demand and falling commodity prices. The report notes that exports from Pakistan’s flagship textile industry improved in both volume and unit price terms, driven by increased competitiveness and energy-efficient upgrades to production lines. The ICT sector also sustained strong momentum, with digital exports maintaining a double-digit rise for the third consecutive year.

Imports expanded by 11.2 percent, largely on account of higher raw-material volumes for industry and the need to replenish key food and energy stocks. The report highlights that lower global oil and food prices helped offset the impact of rising quantities, keeping the import bill contained.

The surplus on the current account, together with the IMF inflows, gave the SBP room to purchase foreign currency from the market, further strengthening reserves. Foreign direct investment also showed a mild uptick, while portfolio flows recorded net outflows amid global uncertainty.

The report credits “a mix of supportive domestic measures and favorable external environment” for the external turnaround, noting that “Pakistan’s current account posted its strongest performance in over two decades.”

The surplus, in turn, created space for the central bank to gradually reduce interest rates, stimulating credit growth and private-sector activity. It also helped improve Pakistan’s sovereign credit profile: international rating agencies upgraded the country’s outlook from CCC+ to B- between April and August 2025, citing lower external vulnerability.

However, the SBP cautioned that the external balance remained sensitive to shocks such as adverse weather events affecting agricultural exports, potential oil price hikes, and tightening global financial conditions. To sustain the external stability, the report urges structural measures focused on diversifying export products, attracting value-added manufacturing investment, and deepening the domestic financial market to mobilize savings.

The central bank further observed that remittance inflows, though currently buoyant, could plateau if host-country demand slowed. It called for converting remittance flows into productive investments, including housing finance and SME ventures, to maximize their long-term developmental impact.

For ordinary Pakistanis, the external stability translated into tangible relief: lower fuel prices, fewer exchange-rate shocks, and gradually easing import restrictions that had constrained businesses during earlier crisis periods.

Overall, FY25 marked a decisive break from a decade of recurring current-account deficits. The SBP emphasized that “sustained policy discipline, stable macroeconomic conditions, and continued trust of overseas Pakistanis were pivotal in achieving this surplus.”

Credit: INP-WealthPk