As expected, the current account posted a surplus of USD459 million in May, a significant improvement of USD735 million from the previous month’s deficit of USD276 million. Almost the entire turnaround was driven by record monthly remittances, which reached an all-time high of USD4.25 billion—USD712 million higher than in April.
The key question, however, is the sustainability of these inflows, which may remain elevated in the coming months due to the possible repatriation of savings parked in the UAE.
Nonetheless, the overall picture remains encouraging for now. The current account posted a surplus of USD255 million in 11MFY26, compared to a surplus of USD1.62 billion during the same period last year. The concern is that, despite economic growth remaining below 4 percent, the goods trade deficit continues to widen, increasing by 24 percent to USD30.2 billion in 11MFY26.
The story remains largely unchanged. Contrary to the government’s stated objective of export-led growth, goods exports declined by 5 percent to USD28.2 billion in 11MFY26. The drop was primarily driven by a 12 percent decline in non-textile exports, while textile exports managed only a marginal increase of 1 percent. The sharpest decline came in food exports, which fell by 28 percent as the one-off windfall from rice exports faded.
On the other hand, goods imports continue to creep upward, rising by 8 percent to USD58.5 billion. Except for the textile group, imports across almost all categories have increased. Petroleum imports remained largely stagnant despite surging oil prices in recent months, thanks to the absence of RLNG imports. However, this situation is likely to change as Qatar’s RLNG supplies resume.
The largest increase in imports has come from the transportation sector, where the import bill surged by 77 percent to USD3.4 billion in 11MFY26. This reflects the boom in the auto sector, with 211,000 locally assembled cars sold (including non-PAMA members) during 10MFY26—although this is not the highest number on record. More notably, CKD imports reached a record USD1.9 billion in 11MFY26, surpassing the previous peak of USD1.65 billion in 11MFY22 by 16 percent. The growing share of relatively high-end vehicles suggests that income inequality may be widening.
The State Bank of Pakistan appears visibly uncomfortable with this trend. It has maintained restrictions on auto financing, limiting consumer financing to Rs3 million per vehicle. Yet this has done little to curb demand. The latest approach seems to involve soft administrative controls on auto imports, which could slow the growth of these so-called non-essential imports.
A more effective way to address the issue—and simultaneously support exports—would be to maintain a more competitive exchange rate. Instead, policy appears to be moving in the opposite direction. According to SBP data, the Real Effective Exchange Rate (REER) reached 106.15, its highest level in seven years and well above the ten-year average of 102.59.But we all know the sensitivities involved in certain powerful circles.
Meanwhile, the services balance continues to improve. Services exports grew by 17 percent to USD9.1 billion, while services imports increased by only 7 percent to USD11.1 billion. As a result, the services trade deficit narrowed by 24 percent to USD2.0 billion in 11MFY26. However, in absolute terms, the USD629 million improvement in the services balance is only a small offset against the USD5.8 billion deterioration in the goods trade balance.
The real support is coming from workers’ remittances, which continue to grow despite a high base. Remittances increased by 9 percent, or USD3.2 billion, to USD38.1 billion in 11MFY26. Much of the increase has come from the UAE in particular and the GCC region more broadly. The sustainability of this trend remains uncertain, and the outlook for next year’s current account will depend heavily on it.
For now, however, the broader balance-of-payments position remains manageable. With higher external loan inflows offsetting declining foreign direct investment, SBP expects gross foreign exchange reserves to exceed USD18 billion by the end of June.
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