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Tuesday, March 18, 2025

Current account deficit at $12m in Feb

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KARACHI:

Pakistan’s current account balance (CAB) recorded a deficit of $12 million in February 2025, a significant decrease against a deficit of $399 million in January 2025.

For the July-February FY25 period, the current account posted a surplus of $0.7 billion, a sharp contrast to the $1.7 billion deficit recorded during the same period last year.

This turnaround has largely been driven by strong remittance inflows, $3.1 billion, and a modest rise in exports. However, underlying structural issues remain, as the trade deficit in goods and services remains high at $2.73 billion. Despite a 2.4% increase in exports to $2.59 billion, imports surged by 15% to $5.02 billion, straining external balances and raising concerns about inflationary pressures and external financing needs.

While the improvement in the current account provides temporary relief, weak foreign investment inflows, rising debt repayments, and persistent trade imbalances continue to pose significant risks to Pakistan’s external sector.

“The current account improved compared to the previous month but remained in the red due to a high trade deficit offsetting the benefits of increased remittances in February,” Research Head of JS Global Waqas Ghani Kukaswadia said. Despite this, the 8MFY25 current account balance shows a surplus, though it has decreased to US$691m. The financial account, which includes foreign loans and investments, has been declining in recent months.

“We highlight that some planned foreign inflows have not materialized which may be unlocked after the IMF disbursement,” he said. This decline in the Balance of Payments is putting pressure on State Bank of Pakistan (SBP) reserves which dropped by $634m CYTD. Additionally, import cover has fallen from 2.8 months to 2.3 months.

Pakistan’s Balance of Payments (BoP) data for February 2025, released by the SBP, presents a mixed economic scenario.

The relatively improved CAB can be attributed to a growth in exports and strong secondary income inflows, primarily from workers’ remittances, which totalled $3.1 billion. However, this positive development masks structural concerns, as trade deficit in goods and services remains high at $2.73 billion.

Despite a 2.4% increase in exports (YoY) to $2.59 billion, imports surged by 15% (YoY), reaching $5.02 billion, further straining the trade balance. The rising import bill, driven by energy and capital goods demand, signals potential inflationary pressures and external financing challenges.

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