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Express Tribune
17-04-2025
- Business
- Express Tribune
CA sees historic surplus of $1.2b
Listen to article Pakistan's external account posted a remarkable turnaround in the third quarter of FY25, with the current account registering a surplus of $1.2 billion in March 2025. While the current account surplus is positive, it remains heavily dependent on remittancesa volatile sourcerather than sustainable export growth. March 2025 marked a historic milestone for Pakistan's external sector, with the country recording its highest-ever monthly current account surplus of $1.2 billion, said the Research Head of Arif Habib Limited (AHL), Sana Tawfiq. This was a significant jump from the surplus of $363 million in March 2024 and a sharp reversal from the deficit of $97 million recorded just a month earlier in February 2025. The strong performance in March helped push the cumulative surplus for the first nine months of FY2025 (9MFY25) to $1.9 billion, a marked improvement compared to the $1.7 billion deficit posted during the same period last year. "The record current account surplus of $1.2 billion in Mar'25 was driven by a receipt of highest ever remittances of $4.1 billion from Pakistani diaspora, slight rise in exports and a marginal decline in import bills due to stable oil prices," said Head of Sales, Insight Securities, Ali Najib. Improved services exports, particularly in IT and freelancing, also supported the surplus. The overall 9MFY25 performance reflects sustained improvement in external balances, prudent fiscal management, and a narrowing trade gap, reversing last year's deficit, he said. However, despite the optimism this brings, economic analysts caution that the improvement may be more circumstantial than structural, driven largely by temporary boosts in remittances and continued import suppression. This reliance on remittances raises concerns about the durability of the surplus, especially in the absence of significant improvements in the country's export performance. Exports of goods rose by 10% year-on-year (YoY) to $2.8 billion in March 2025, compared to $2.5 billion in March 2024. On a month-on-month (MoM) basis, exports increased by 6% from $2.6 billion in February 2025. Similarly, exports of services grew by 5% YoY, reaching $744 million in March 2025, up from $709 million in the same month last year. On a MoM basis, services exports were up by 4% from $713 million in February. Technology exports remained a key growth driver within the services sector, registering a 12% YoY increase to $342 million in March 2025, contributing 46% to total services exports. On the import side, goods imports rose by 8% YoY to $4.95 billion in March 2025, up from $4.57 billion in March 2024. However, imports declined by 2% MoM from $5.06 billion in February 2025. Imports of services also grew by 7% YoY to $970 million compared to $908 million in the same period last year, though they remained nearly flat on a monthly basis from $973 million in February. Key import categories for March included machinery ($822 million) and petroleum products ($1.2 billion). Despite some improvement in trade figures, Pakistan continues to grapple with persistent trade imbalances. The goods trade deficit stood at a substantial $18.7 billion, reflecting deep-rooted structural issues in export competitiveness. Meanwhile, the services sector failed to provide a cushion, with the services trade deficit widening to $2.318 billion, highlighting underperformance in key areas such as IT, tourism, and logistics. Additionally, the primary income account recorded a $6.524 billion outflow — mainly due to profit repatriation by foreign companies — further eroding the country's foreign exchange reserves. Without diversification and value addition in exports, these trade deficits will continue to exert pressure on the balance of payments. The financial account also showed troubling volatility. Net Foreign Direct Investment (FDI) fell sharply to -$1.725 billion, underscoring investor hesitancy amid political uncertainty and macroeconomic instability. Although portfolio investment posted a positive inflow of $329 million, these flows remain highly sensitive and unstable. More concerning is the rise in government debt liabilities — particularly borrowing from the International Monetary Fund (IMF) and other multilateral lenders — which contributed to a $2.5 billion increase in net liabilities. This trend highlights the growing risks to debt sustainability and the unsustainable nature of relying on debt to prop up reserves. A revival in FDI will require a comprehensive and credible policy that has a mandate from the democratic institutions instead of arbitrary platforms established on the whims of powerful individuals and other reforms to improve investor confidence. Foreign exchange reserves held by the State Bank of Pakistan (excluding CRR) rose to $10.734 billion by March 2025, offering some breathing space. However, this figure remains below safe thresholds when measured against import coverage. The country's continued reliance on IMF funding — evidenced by a $528 million drawdown — underlines its vulnerability and dependence on external bailouts. While the upward trend in reserves is encouraging, the recovery remains fragile, and Pakistan's external buffers are insufficient to absorb major economic shocks.
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Express Tribune
12-03-2025
- Business
- Express Tribune
Moody's upgrades banking outlook
Listen to article Moody's, the global rating agency, has upgraded Pakistan's banking sector outlook from stable to positive and forecasts GDP growth to reach 3% in 2025, citing resilient financial performance and improving macroeconomic conditions. However, challenges persist, particularly concerning long-term debt sustainability and high exposure to government securities. The shift from stable to positive reflects stronger government liquidity, a more stable external position, and a recovering economy, with GDP growth forecast at 3% in 2025. While long-term debt sustainability and government securities exposure remain concerns, Moody's expects lower inflation and policy rate cuts to drive private-sector investment. The upgrade aligns with Pakistan's sovereign rating outlook, signalling growing confidence in the country's financial stability. "This development will positively impact Pakistan's economy by encouraging private-sector investment due to lower borrowing costs, boosting consumer spending, and enhancing financial sector confidence," said Ali Najib, Head of Equity Sales at Insight Securities. Moody's has raised Pakistan's rating to Caa2 positive, as the country's banks hold nearly half of their assets in government securities. However, long-term debt sustainability remains a key risk due to Pakistan's weak fiscal position and persistent liquidity and external vulnerability challenges. Moody's forecasts Pakistan's GDP growth to reach 3% in 2025, up from 2.5% in 2024 and a contraction of -0.2% in 2023. Inflation is also projected to drop to 8% in 2025 from an average of 23% in 2024. Lower inflation and reduced borrowing costs will slow the formation of problem loans, though net interest margins are expected to narrow due to interest rate cuts. Despite high dividend payouts, banks are expected to maintain adequate capital buffers, supported by subdued loan growth and strong cash generation. The approval of a 37-month, $7 billion International Monetary Fund (IMF) Extended Fund Facility in September 2024 has provided external financing stability. GDP growth is projected at 3% in 2025 and 4% in 2026, aided by a 10-percentage-point interest rate cut since June 2024. Inflation is expected to fall to 8% in 2025 from 23.4% in 2024, spurring private-sector investment. "This rating upgrade reflects the improvement in the country's macroeconomic indicators coupled with the strong financial performance of the banking sector in the outgoing year," said Waqas Ghani Kukaswadia, Deputy Research Head at JS Global. As of September 2024, government securities made up 55% of banks' total assets, linking their stability to the sovereign. Problem loans rose to 8.4% of total loans, though overall loans represent just 23% of banking assets. Lending to private businesses grew by 5% year-over-year, driven by regulatory Advances to Deposit Ratio (ADR) requirements. However, with the ADR tax removal in 2025, lending pressure will ease, though demand may stay subdued despite lower borrowing costs. Small and Medium sized Enterprise (SME) financing initiatives are expected to support modest loan growth, while problem loans may remain at around 9% of gross loans. With interest rates cut to 12%, net interest margins are expected to decline. Banks earn primarily from government securities, which now yield lower returns. Increased corporate tax rates (44% from 39%) will offset the ADR tax removal, and return on assets is forecasted at 0.9%-1.0% in 2025. Strong profitability and low credit growth have bolstered capital buffers, with Tier 1 capital improving to 17% and total capital-to-risk-weighted assets at 21.5%. Customer deposits remain the primary funding source (60% of assets), with remittances boosting liquidity. While banks hold significant government securities as collateral, foreign exchange risks have eased with rising reserves. The government's capacity to support banks has improved, driven by its upgraded sovereign rating and stronger fiscal position.
