Pakistan’s external account weakened during FY26 as the current account (CA) recorded a marginal deficit of USD 139mn, compared with a surplus of USD 1.84bn in FY25. The reversal was primarily driven by a 25.4% YoY expansion in the merchandise trade deficit to USD 33.62bn, as imports rose 9.0% YoY to USD 64.47 bn, while exports declined by 5% YoY. Higher international oil prices, coupled with recovering domestic demand, increased imports of petroleum crude, petroleum products, electrical machinery, and industrial raw materials, placing considerable pressure on Pakistan’s external account.

•       Despite the deterioration in the trade balance, Pakistan’s external position remained remarkably resilient. Record workers’ remittances of USD 41.59bn, equivalent to almost 1.3x the merchandise trade deficit, provided the largest source of non-debt foreign exchange inflows and financed a substantial portion of higher import payments. Together with an 18.7% YoY increase in services exports, these inflows prevented a much larger current account imbalance and underscored the growing structural importance of remittances in maintaining macroeconomic stability.

•       Looking ahead, the sustainability of Pakistan’s current account will largely depend on whether remittance growth continues to offset import-led pressures. While a stable exchange rate, improving fiscal discipline, and stronger debt repayment capacity provide a supportive backdrop, geopolitical uncertainty in the Middle East and persistently high global inflation remain key downside risks to future remittance inflows.

Courtesy: AL Habib Capital Markets Pvt Ltd.