Pakistan’s current account slips to $1.1bn deficit in 7MFY26 as trade gap widens

Pakistan’s external position weakened during the first seven months of FY2026 as a decline in exports and a rise in imports widened the trade deficit, pushing the current account into a $1.1 billion deficit despite higher remittances, according to the Finance Division’s Monthly Economic Update and Outlook for February 2026.

The report shows that exports contracted by 5.5% while imports increased by 9.8% during July–January FY2026. Although January 2026 recorded a current account surplus of $121 million, the cumulative position for the seven-month period stood at a deficit of $1.1 billion, compared to a surplus of $0.6 billion in the same period last year.

Total goods and services exports amounted to $23.9 billion, slightly lower than $24.1 billion last year, with goods exports recorded at $18.3 billion. Imports of goods and services rose to $44.4 billion from $40.0 billion, with goods imports at $36.7 billion. As a result, the trade deficit widened to $20.5 billion from $15.9 billion a year earlier.

Workers’ remittances increased by 11.3% to $23.2 billion, led by inflows from Saudi Arabia and the UAE. January inflows reached $3.5 billion, up 5.3% year-on-year.

Foreign direct investment (FDI) declined sharply to $517.4 million during July–January FY2026, down from $1.483 billion in the corresponding period last year. However, FDI improved in January, rising to $310 million compared to $140.6 million in January 2025. China and Hong Kong were the main sources of inflows, while power and financial services attracted the largest sectoral investments.

Portfolio investment remained negative, with net outflows of $463.9 million compared to $177 million last year, despite a 48.3% rise in the stock market index. Foreign exchange reserves stood at $21.3 billion as of February 13, 2026, including $16.2 billion held by the State Bank of Pakistan.

Inflation measured by the Consumer Price Index rose to 5.8% year-on-year in January 2026, with average inflation during July–January at 5.2%, down from 6.5% in the same period last year. The report projects inflation in the range of 6–7% for February.

Large-Scale Manufacturing grew by 4.8% during July–December FY2026 compared to a contraction of 1.8% last year. Cement dispatches increased by 10.6% during July–January, reaching 30.6 million tonnes.

On the fiscal front, total revenue during July–December FY2026 increased by 9.4% to Rs10,683.6 billion, while total expenditure declined by 10.3% to Rs10,141.7 billion. The fiscal balance recorded a surplus of 0.4% of GDP compared to a deficit of 1.3% last year. The primary surplus stood at Rs4,105.5 billion, equivalent to 3.2% of GDP.

FBR tax collection grew by 10.5% to Rs7,176.9 billion during July–January. Credit to the private sector amounted to Rs638.2 billion during July 1 to February 13, lower than Rs770.8 billion in the corresponding period last year.

The report noted that external risks remain, particularly due to geopolitical uncertainty and volatility in global commodity prices.