The Current Account has deteriorated notably in the 1HFY26, with the Current Account Balance swinging into a deficit of USD1,174mn. This represents a stark reversal from a USD957mn surplus in 1HFY25. In Dec’25 alone, the CAD stood at -USD244mn, contrasting sharply with a surplus of USD454mn in Dec’24. The balance worsened significantly month-on-month, shifting from a surplus of USD98mn in Nov’25 to a deficit in December. The overall trend for 1HFY26 signals a significant widening of the external imbalance compared to the previous year, according to a report of AHCML Research.
Trade Deficit Widens: Imports Outpace Exports
The primary driver of the deteriorating current account is the ballooning Trade Deficit, which expanded by 34% YoY to USD 17,556 mn in 1HFY26. The deficit in Dec’25 alone surged 67%YoY to USD3,356mn. This widening gap is fueled by strong import growth; goods imports rose 12% YoY, significantly outpacing sluggish export performance, which contracted 5% YoY.
Oil Imports: A Declining Burden with Volatile Trends
Petroleum imports, while still a major component of the import bill, declined 2.64% YoY in 1HFY26 to USD7.09bn. However, monthly volatility persists: Dec’25 imports fell 6% YoY to USD1.18bn but rose 17.4% MoM. Petroleum’s share in the total import bill stood at 20.62% in Dec’25, indicating its continued significance. This mixed trend suggests some annual relief from energy import costs, but MoM fluctuations remain a concern.
Non-Oil Imports: Sustained Growth Across Categories
Excluding petroleum, import growth remains broad-based. Transport imports surged 109.2%YoY in 1HFY26 to USD1.71bn, driven by higher vehicle purchases. Food imports rose 19.9%YoY to USD4.11bn, while Machinery imports increased 15.4% YoY to USD4.63bn, reflecting ongoing industrial and domestic demand. Metal imports also grew 16.8%YoY, led by iron and steel.
Textile Exports: A Resilient Performer Amid Challenges
The textile sector remains Pakistan’s export backbone, demonstrating resilience despite broader trade headwinds. In Dec’25, textile exports grew 9.97% YoY to USD1.59bn, accounting for 57.92% of total exports. Knitwear (USD432.13M, +20.36% YoY) and Readymade Garments (USD366.2M, +14% YoY) led the growth. Cumulatively, textile exports in 6MFY26 increased 5.16%YoY to USD9.1bn, underscoring their critical role in export earnings.
Export Performance: Mixed Signals Amid Weakness
Beyond textiles, Pakistan’s export sector presents a mixed picture. While Services exports grew robustly by 16% YoY, Goods exports declined by 5% YoY in 1HFY26. In December, goods exports fell 11.5% YoY, though they rebounded 21% MoM. The Food Group experienced a sharp 37.58%YoY decline in December exports, highlighting sector-specific vulnerabilities.
Remittances: A Vital Buffer Amid Deficits
Workers’ Remittances remain a crucial stabilising force, providing essential foreign exchange support. Inflows totalled USD19,733mn in 1HFY26, marking an 11% YoY increase. December remittances were particularly strong at USD3,589mn, up 17% YoY and 13% MoM. This steady growth helped partially offset the large trade deficit and supported the secondary income balance.
Conclusion: Navigating External Sector Challenges
Pakistan’s external sector is under significant strain, characterised by a widening Current Account Deficit driven by a rapidly expanding Trade Deficit. While textile exports show resilience and oil import costs have declined annually, strong growth in non-oil imports and weakness in other export categories continue to pressure the balance. The goal is to enhance export diversification, manage non-essential imports, and leverage stable remittance inflows to restore external stability in the coming months.
