A C/A surplus of $582 million was posted

KARACHI:

In December 2024, Pakistan recorded a third consecutive month of current account surplus (CA) of $582 million, reflecting a year-on-year increase of 109%. This positive trend is attributed to improved exports, strong remittances due to massive manpower migration, moderate international commodity prices and reduced non-essential imports due to declining purchasing power.

However, challenges remain as the trade deficit widened, with imports exceeding $5 billion, exposing vulnerabilities in maintaining external account stability. Analysts warn that rising energy prices or slowing remittances could weigh on the country’s external finances.

For the first half of fiscal year 2024–25 (1HFY25), the cumulative CA surplus reached $1.2 billion, in sharp contrast to the $1.4 million deficit recorded in the same period last year. Export revenue reached $3 billion in December, up 10 percent year-on-year and surpassing the monthly average of $2.6 billion last year.

“The continued current account surplus for October, November and December 2024 reflects the right direction of economic policies,” Prime Minister Shehbaz Sharif said in a press release. The positive indicators reflect growing confidence in the government’s economic policies, he said, adding that programs like “Uraan” will further boost the economy.

JS Global attributed the surplus to strong remittance inflows, which overtook the trade deficit, along with a relatively lower services deficit. The revised data, however, broke a streak of monthly surpluses, with the State Bank of Pakistan (SBP) reporting deficits of $59 million for August and $21 million for September 2024. Despite these adjustments, the cumulative

CA surplus for 1HFY25 remains significantly positive at $1.2 billion.

Discrepancies in SBP, PBS data

Export earnings rose to $3 billion in December 2024, up 10 percent year-on-year (y-o-y), surpassing the monthly average of $2.6 billion last year, according to JS Global. Meanwhile, imports averaged $4.7 billion, resulting in a trade deficit of $1.7 billion for the month.

However, the SBP reported a trade deficit of $719 million lower than the Pakistan Bureau of Statistics (PBS). This discrepancy highlights the different accounting methods used – SBP uses a cash-based approach, while PBS uses accrual accounting, which includes deferred payment arrangements. For 1HFY25, trade deficit figures reported by SBP and PBS remain close at $11.5 billion and $11.2 billion, respectively.

Negative balance of payments

The financial account recorded a deficit in December 2024 due to debt repayments to banks. However, new loans of $733 million and foreign direct investment (FDI) inflows of $199 million provided some support. As a result, the overall balance of payments (BoP) showed a small deficit of $73 million for December.

“Despite external debt repayments, cumulative BoP surplus for 1HFY25 stands at $1.7bn, reflecting resilience,” JS Global wrote. This surplus stabilized the SBP’s foreign reserves at $11.7 billion, with import coverage improving to 2.8 months, the highest in nearly three years.

Pakistan recorded a net FDI inflow of $170 million in December 2024, up from $219 million in November. However, net FDI inflows for 1H25 rose 20% year-on-year to $1.3 billion, compared to $1.1 billion in the same period of the previous fiscal year.

CA SBP FY25 target is within reach

For the fiscal year 2024–25 (FY25), the SBP projects a CA balance within 0%–1% of GDP. JS Global noted that this target is achievable, supported by a balanced trade deficit and stable remittance inflows.

Ali Najib, Head of Equity Sales at Insight Securities, attributed the improved CA surplus to better exports, strong remittances, moderate global commodity prices and limited non-core imports due to reduced purchasing power. He noted, however, that the trade deficit widened in December as imports topped $5 billion, underscoring the challenges of maintaining external stability.

“Pakistan’s dependence on remittances and global demand for its exports remains a key vulnerability,” Najib observed. He warned that rising energy prices or declining remittances could weigh on future performance.

The surplus helped boost foreign exchange reserves, stabilize the rupee and boost investor confidence. Sustaining this momentum will require strategic export diversification, sustaining remittance inflows and effective import management. Addressing structural vulnerabilities will be critical to ensuring long-term economic resilience, Najib added.