Ayesha Saba

Pakistan’s external account is projected to remain manageable in the fiscal year 2026 as strong remittance inflows help offset rising imports and a modest return to a current account deficit. After recording a surplus in the previous fiscal year, the current account balance is expected to move back into deficit as domestic economic activity strengthens and import demand increases. However, the deficit is projected to remain contained at 0.3% of gross domestic product in FY26, indicating limited external pressure.

The Pakistan Investment Strategy 2026, prepared by Arif Habib Limited, said remittances continue to be the most consistent and reliable source of external financing for Pakistan’s economy, providing stability during periods of rising imports. During the first five months of fiscal year 2026, remittance inflows reached USD 16.1 billion, reflecting an increase of 9.3% compared to the same period of the previous year. In the corresponding period of fiscal year 2025, remittances stood at USD 14.8 billion.

The report explains that this growth is supported by several factors. These include strong overseas employment in recent years, with more than one million workers deployed abroad in fiscal year 2025. The narrowing gap between formal and informal exchange rates has also encouraged more remittances to flow through official channels. In addition, improvements in digital onboarding have made it easier for overseas Pakistanis to send money through formal systems.

According to the document, remittance inflows are expected to remain strong throughout the year. Total remittances are projected to reach USD 40.1 billion in fiscal year 2026 and rise further to USD 41.7 billion in fiscal year 2027. Region-wise, countries in the Gulf Cooperation Council are expected to contribute around USD 22 billion in remittances during the fiscal year 2026. Inflows from the United Kingdom are projected at USD 6.2 billion, while remittances from the United States are expected to reach USD 3.7 billion.

Other regions, including European countries, Australia, and Canada, are also expected to contribute steadily. On the trade side, goods exports declined by 3.2% year-on-year during the first five months of fiscal year 2026. The decline was largely due to a 35% contraction in food exports, mainly driven by supply-side challenges following flooding. In contrast, textile exports showed resilience, recording growth of 4.1% and continuing to anchor overall export performance.

Services exports performed strongly during the period, increasing by 19% year-on-year, with information technology services recording record monthly receipts.  Imports increased during the same period due to higher demand for machinery, metals, food, and transport equipment, reflecting improving domestic economic activity.

Despite rising imports, strong remittance inflows and growing services exports are expected to keep the external account on a stable path. Arif Habib Limited notes that remittances will continue to support the national currency, ease external financing needs, and cushion the economy against external shocks in fiscal year 2026.

Credit: INP-WealthPk