Pakistan posts current account deficit of $420 million in January

After a quarter of posting surpluses, Pakistan recorded a current account deficit of $420 million in January, official data suggests.

In the first seven months of the current fiscal year, the first quarter experienced a deficit every month, followed by a surplus in the second quarter, before returning to a deficit in January. Four out of the seven months showed negative results, while three were positive.

The January deficit of $420 million marked a 4% increase from the $404 million recorded in the same month last year.

For the seven months cumulatively, the current account surplus stood at $682 million.

In January, the trade deficit of goods was $2.5 billion, up 26% compared to $1.99 billion in the same month last year. Direct investment posted an outflow of $177 million, while portfolio investment stood at $95 million during the month.

Pakistan's external account in FY24 saw encouraging shifts, driven by stabilization efforts that curbed long-standing imbalances. FY24 witnessed a significant reduction in the current account deficit, which shrank to $1.7 billion from $3.3 billion in FY23.

Analysts project a trade deficit of $27 billion for FY25, reflecting an increase from the previous fiscal year. This projection is driven by a robust 12% year-on-year rise in imports, while exports are expected to grow at a more conservative 6%.

Despite the challenges posed by the global economic climate, the government's strategic initiatives aimed at enhancing export-oriented sectors, along with declining oil prices, offer a glimmer of hope for improving the trade balance.

On the export front, optimism surrounds a 9% boost in textile exports, partly fueled by a shift of orders from Bangladesh amid its internal challenges. However, agricultural exports may experience a decline of around 2%, attributed to reduced wheat production and intensified competition from India in the rice export market.

Encouragingly, Pakistan's IT sector is experiencing remarkable growth. In the first half of FY25, total IT exports reached $1.86 billion, marking a remarkable 28% year-on-year increase. This highlights the substantial potential for service exports to positively impact the trade balance.