In numbers: Pakistan's external  account a year after election

Prime Minister Shehbaz Sharif's government has completed a year marked by significant economic and fiscal challenges.

Despite the economic difficulties, there has been a positive shift in Pakistan's external account situation, largely due to the International Monetary Fund's $7 billion Extended Fund Facility.

In January 2024, Pakistan's total liquid forex reserves stood at $13.3 billion, which have now increased to $16.1 billion. Similarly, the State Bank of Pakistan's (SBP) reserves rose from $8.2 billion in January 2024 to $11.4 billion.

The exchange rate has remained relatively stable, moving slightly from 279.5 in January 2024 to 278.9 at present.

The current account deficit, which was $404 million in January last year, has transformed into a surplus of $582 million.

The trade balance also saw improvement, with the deficit going down from $2 billion to $1.7 billion, while remittances grew from $2.4 billion in January last year to $3.1 billion now.

Looking ahead, the government has laid out an ambitious but achievable fiscal adjustment plan, aiming to reduce the overall fiscal deficit from 6.8% of GDP in fiscal year 2023-24 (FY24) to 5.9% in FY25.

This plan includes both revenue-enhancing and expenditure-controlling measures, projecting gross revenue at 14.3% of GDP and total spending at 15.2% of GDP.

Achieving this will require a strong commitment to improving tax collection through direct and indirect taxes, including bringing the retail, export, and agricultural sectors fully into the tax net and curtailing markup expenses.

Pakistan's external account in FY24 saw encouraging shifts, driven by stabilization efforts that addressed long-standing imbalances.

The current account surplus is projected at $940 million, translating to +0.23% of GDP, with the country already posting a surplus of $1,210 million during FY25's first half.

On the export front, there is optimism about a boost in textile exports, partly fueled by a shift of orders from Bangladesh amid its internal challenges. However, agricultural exports may decline due to reduced wheat production and increased competition from India in the rice export market.

Encouragingly, Pakistan's IT sector is experiencing remarkable growth, with total IT exports reaching $1.864 billion in FY25's first half, marking a 28% increase.

Remittances, a crucial pillar of Pakistan's external account, showed an 11% increase in FY24, driven by improving macroeconomic conditions and the stability of the PKR. Remittances are expected to contribute significantly to the external account, with estimates suggesting a total of $36.6 billion in FY25.

Further, Pakistan is taking proactive steps to attract and retain foreign investment through the Special Investment Facilitation Council.