Jul-Aug FY26: Pakistan’s current account deficit widens 45pc to USD624m

KARACHI: Pakistan’s external account has come under renewed pressure as rising imports, driven by a pickup in economic activity, increased the current account deficit by 45 percent in the first two months of this fiscal year (FY26).

The State Bank of Pakistan (SBP) on Thursday reported that the country posted a current account deficit of USD 624 million in July-August FY26, compared to USD 430 million in the same period last fiscal year (FY25), marking an increase of USD 194 million.

On a year-on-year (YoY) basis, the deterioration is even more striking. In August 2025, the current account deficit surged by 191 percent to reach USD 245 million compared to USD 84 million in August 2024. However, the current account deficit in August 2025 is 35 percent lower than July 2025, in which the deficit was USD 379 million.

Pakistan’s current account posts $254mn deficit in July 2025

However, on the positive side, despite massive increase in the current account deficit and slow financial inflows, foreign exchange reserves held by the SBP remained stable around USD14.3 billion in the second week of September.

Economists attribute the rising deficit to a surge in goods-related imports, driven by growing domestic demand amid economic recovery. Although exports have recorded modest growth, the pace remains insufficient to offset the mounting import bill.

They emphasized that robust export growth, steady remittance inflows, and the timely realization of expected foreign funding will be crucial to containing the widening current account deficit.

The SBP has recently projected that the temporary but significant supply shock caused by recent floods, particularly in the crop sector, may push headline inflation higher and exert additional pressure on the current account deficit in FY26, compared to earlier expectations.

However, estimates suggest that the external sector outlook will remain vulnerable to both domestic and global developments. Despite the flood-related impact, the current account deficit is still expected to stay within the previously projected range of 0 to 1 percent of GDP during FY26.

According to the SBP, flood-related crop losses are expected to put additional pressure on the trade deficit, though this may be partly offset by Pakistan’s improved market access to the United States. The SBP projects its foreign exchange reserves to reach around USD15.5 billion by December 2025, supported by the anticipated realization of planned official inflows.

Copyright Business Recorder, 2025