The balance of payments
The current account balance has been transformed from a deficit of USD 2.1 billion in 2023-24 to a surplus of USD 2.1 billion in 2024-25. This is due to the quantum jump in home remittances of over USD 8 billion, implying an extraordinarily high growth rate of 38.3 percent.
Clearly, the overall level of remittances is unlikely to have increased by over USD 8 billion. This is due to the intervention by the SBP for the first time in the foreign exchange market and replacement thereby of hundi/havala transactions. In the absence of such a big intervention the likelihood is that the current account would have been in a deficit of USD 6 billion, unless strong physical controls were applied on imports.
Given the enhanced reserves position of the SBP, the controls on imports of goods have visibly been relaxed. The growth in the value of imports of goods has been unusually high at over 11 percent.
The real source of worry is the disappointing performance of exports. They have shown a very modest growth rate of only 4 percent. If Pakistan is to reach a position of sustainable external balance of payments, exports in coming years will have to approach a double-digit growth rate; otherwise, exiting from IMF support will be infeasible.
Perhaps, another surprising outcome is the virtually unchanged level of primary income in the current account. Clearly, profit repatriation by multinational companies in Pakistan has not increased because of stagnant profitability in the domestic market. Interest payments ought to have been somewhat higher in the face of the rising stock of external debt of Pakistan.
The good news is the over 9 percent increase in exports of services. This is probably due at least partially to the fast increase in IT exports. Hopefully, this growth rate will be sustained and perhaps enhanced in coming years.
Overall, the over 25 percent growth in secondary income and over USD 38 billion in workers' remittances have led to the surplus in the current account of USD 2 billion.
Turning the financial account, the outcome is a big decline in the surplus. It was USD 5.4 billion in 2023-24 and has declined by over USD 3.9 billion to only USD 1.5 billion in 2024-25.
The level of foreign investment has remained unchanged at USD 1.8 billion. There has been a net outflow of portfolio funds. This has happened despite the strong boom in the stock market in Pakistan. This highlights the continuing lack of confidence of the international private sector in the Pakistan economy.
The net inflow into the Government account has been only marginally higher. It was USD 1.6 billion in 2023-24 which has increased to USD 2.3 billion in 2024-25. Both disbursement and amortization have shown increases.
The other inflows into the financial account, especially to the private sector, have turned negative. They were USD 2 billion in 2023-24 but have turned negative by USD 2.6 billion in 2024-25. This is another worrying development.
The foreign exchange reserves have been bolstered significantly by USD 5.1 billion. This is due to the extent of USD 3.7 billion to the overall surplus in the balance of payments and USD 1.4 billion of net inflow from the IMF in the first year of the IMF extended facility.
The level of foreign exchange reserves of the SBP at the end of 2024-25 stands at USD 14.1 billion. This provides import cover of almost 2.5 months' of imports. However, unusual short-term fluctuations have been observed in foreign exchange reserves. They fell temporarily to only USD 9.1 billion on the 20th of June 2025. This magnitude of fluctuation in foreign exchange reserves does not auger well for stability in the value of the rupee.
There is need to develop an outlook for the balance of payments in 2025-26. The first indicator is the estimated net inflow of external resources into the federal government account. According to the Budget in Brief publication of the federal ministry of finance, the net inflow of external resources in 2025-26 is projected to decline massively from Rs 2,583 billion in 2024-25 to only Rs 105 billion in 2025-26, due to a quantum jump of 70 percent in external debt repayment.
The IMF has also made projections of the balance of payments in the Staff Report after the successful completion of the first review. The outlook for 2025-26 is for a current account deficit of USD 1.5 billion. Further, the financial account is also anticipated to be lower than the level in 2024-25 by USD 1 billion.
The pre-condition for continuation of some buildup of foreign exchange reserves in 2025-26 is for Pakistan to continue operating within the External Fund Facility of the IMF. This will lead to a net inflow of USD 1.9 billion as compared to only USD 0.5 billion in 2024-25.
Overall, the balance of payments position in 2025-26 may become more fragile without a big increase in home remittances as in 2024-25. Already, after a year of demonstrated strength of the rupee, there are now indications of faster decline in the value of the rupee. The SBP and the Ministry of Finance will need to maintain vigilance and take action whenever necessary.
Copyright Business Recorder, 2025
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