KARACHI: After a significant reduction in the policy rate, Pakistan achieved its highest current account surplus in over ten years, reaching $729 million in November 2024. This surge was mainly driven by an increase in remittances from overseas Pakistanis, along with a notable decrease in the trade deficit.
Shankar Talreja, Director of Research at Topline Securities, reported that the current account surplus for November 2024 marked a 15-year high, reflecting a 111% increase from the previous month. This surplus brought the cumulative current account surplus for the first five months of FY2025 to $944 million, a sharp turnaround from the $1.67 billion deficit in the same period last year.
The improvement in November’s surplus was largely due to a 14% month-on-month (MoM) reduction in the trade deficit and a 43% drop in the services deficit. Additionally, the primary deficit saw a 7% MoM decrease, signaling overall economic stabilization.
Sana Tawfik, Head of Research at Arif Habib Limited (AHL), pointed out that the $729 million surplus was the highest monthly surplus since February 2015, and the second-largest since July 2013. A significant factor behind the surplus was a 29% year-on-year (YoY) increase in remittances, totaling $2.9 billion in November 2024. Remittance growth was particularly strong from Saudi Arabia (up 34%), the UAE (up 50%), and the UK (up 20%).
On a cumulative basis, remittances grew 34% YoY in the first five months of FY2025, playing a critical role in stabilizing the country’s external accounts. Exports also saw moderate growth, with goods exports rising 7% YoY and services exports increasing by 8% YoY in November.
Despite a rise in imports, the trade deficit narrowed by 24% YoY in November. This was largely due to a 9% decline in goods imports, which was driven by a 2% MoM reduction in machinery imports, a 4% MoM decline in food imports (partly due to falling global palm oil prices), and a significant 29% drop in petroleum imports. The reduction in petroleum imports was linked to lower international oil prices, with the average price of Arab Light crude falling from $76.34 per barrel in October to $74.85 per barrel in November.
On a cumulative five-month basis, the trade deficit reached $10.8 billion, reflecting a 7% YoY increase, highlighting ongoing challenges despite the recent monthly improvements.
Foreign Direct Investment (FDI) also showed promising growth, with net FDI inflows of $219 million in November 2024, compared to $133 million in October. Cumulatively, FDI inflows for the first five months of FY2025 increased by 31% YoY to $1.1 billion, compared to $856 million in the same period last year.
In response to these positive developments, the State Bank of Pakistan (SBP) recently reduced its policy rate by 200 basis points to 13%, marking the fifth consecutive rate cut in the ongoing easing cycle. The SBP attributed the decision to a sharp decline in headline inflation, which fell to 4.9% in November, and improved economic growth prospects.
Talreja emphasized that the improved trade balance, driven by declines in both goods and services imports, played a key role in supporting the current account surplus. The SBP Governor also expressed optimism about a significant current account surplus, which is expected to fall within the lower bound of the previously projected range of 0-1% of GDP.
Balance of Payments (BOP) data shows substantial improvement in Pakistan’s external accounts. The current account deficit, which stood at $3.3 billion in FY23, has narrowed to $1.7 billion in the first five months of FY24. By November FY25, the current account recorded a cumulative surplus of $944 million, indicating a positive shift in the external account position.
This positive momentum is attributed to increased remittances, reduced imports, and moderate improvements in exports. Goods exports saw moderate growth, rising from $27.8 billion in FY23 to $13.3 billion by November FY25, while goods imports decreased sharply from $52.7 billion in FY23 to $23 billion during the same period. This reduction in imports has played a crucial role in narrowing the goods trade deficit from $24.8 billion in FY23 to $9.7 billion by November FY25.
The services sector has also contributed positively to the current account position, with services exports rising to $3.3 billion in July-November FY24, while services imports remained stable. This has helped keep the services trade deficit manageable.
Overall, Pakistan’s external account indicators suggest a positive outlook, supported by strong remittance inflows, an improved trade balance, and encouraging FDI growth. While challenges remain, such as rising imports, the country is making significant progress toward economic stabilization and sustainable management of its external accounts.
