EDITORIAL: Prime Minister Shehbaz Sharif accurately referred to the 2.1 billion US dollar current account (C/A) surplus in 2024-25, the first time in 14 years, and the largest after 22 years, as a historic milestone.
While critics challenge the source of some of the components of the current account including remittance inflows and the administrative measures to contain imports yet the surplus is no mean achievement.
However, one key question remains: whether the balance of payment issue (with current account as only one component) due to the country’s economy experiencing a boom-bust syndrome has receded for all times to come (a syndrome that has generated a periodic need to secure an International Monetary Fund programme — Pakistan is currently on its twenty-fourth programme). This vicious cycle is sourced to rising imports of raw materials and intermediate goods with the objective of achieving a higher growth rate while exports remain subdued as they are largely agro-based whose international market price has not increased appreciably.
The IMF documents relating to the ongoing programme, approved in September 2024, present a very disturbing picture: “Pakistan ranked 85th in the Economic Complexity Index, the same rank it held in 2000. With an export basket strongly biased toward agriculture and textiles, the country has struggled to reallocate resources towards more technologically complex products.
Reallocation is held back by existing macroeconomic distortions, including public procurement of agricultural products, price controls on raw inputs and fiscal and financial incentives for low productivity sectors;“ and that “the state’s support of businesses through subsidies, favourable taxation arrangements, protection and government price setting has undermined the development of a dynamic and outward-oriented economy” while “inadequate investment in infrastructure has left Pakistan vulnerable to impact of climate change.”
Two macroeconomic metrics released by the Finance Division indicate the veracity of these damning claims by the Fund.
First, the large scale manufacturing sector was in the negative territory last fiscal year (negative 1.52 percent July-April 2025) against 0.26 percent in the comparable period of the year before in spite of the doubling of credit to the private sector — from 323.5 billion rupees 2023-24 to 676.6 billion rupees 2024-25 (which lent credence to the fact that the credit was utilised for non-productive sectors); and second outflow of foreign portfolio investment rose from 559.5 million US dollars to 624.4 million US dollars which explains why total foreign investment inflows declined from 1582.9 million US dollars in 2024 to 1354.4 million US dollars in 2025.
What the focus on current account alone ignores is taking cognizance of the government reliance on borrowing from abroad, which is detailed in the financial account that is another key component of the balance of payment. In June 2025, the financial account was negative 2785 million US dollars against negative 900 million US dollars in June 2024, negative 743 million US dollars in June 2023, negative 2856 million US dollars in June 2022 and negative 3037 million US dollars in June 2021 (the year the country was struggling to cope with the Covid-19 aftermath).
The overall balance, as per the SBP website, was negative 3147 million US dollars in 2025, against negative 500 million US dollars in 2024, negative 1133 million US dollars in 2023, negative 632 million US dollars in 2022 and negative 1618 million US dollars in 2021.
In 2025 reserves rose to an unprecedented 9.1 billion US dollars; however, with rollovers from friendly countries at around 16 billion US dollars this statistic provides little comfort level.
It is, therefore, important to note the boom-bust syndrome that has marred the country’s economic performance is still relevant and one can only hope that some far-reaching structural reforms are implemented that would change the sustained mishandling of the economy due to the failure of successive economic team leaders to challenge not the Fund’s diagnosis but the prescriptions that are not reflective of the ground realities in this country though they may be applicable to other countries.
Copyright Business Recorder, 2025
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