Record remittances fail to offset import surge as Pakistan posts $139mn C/A deficit in FY26

Pakistan’s current account recorded a marginal deficit of $139 million in FY26, reversing a surplus of $1.84 billion in the previous fiscal year, according to data released by the State Bank of Pakistan (SBP) on Friday.

Despite record workers’ remittances, Pakistan’s external account was pushed into negative due to high imports, while exports remained largely stagnant during the outgoing fiscal year.

Earlier, SBP Governor Jameel Ahmad projected the current account would remain balanced or in surplus for the second consecutive fiscal year, i.e. FY26, paving the way for an increase in economic activities and growth in the ongoing fiscal year.

“I am quite confident that June numbers will also be good. So, overall, we are expecting the current account balanced or slightly in surplus for FY26,” the central bank chief said while speaking at the Pakistan Banking Summit 2026.

The deterioration in the C/A was largely driven by a widening trade gap.

During FY26, Pakistan’s exports of goods and services clocked in at $40.88 billion, compared with $40.79 billion in FY25, reflecting a rise of just 0.2%.

Meanwhile, imports of goods and services climbed to $76.39 billion during the fiscal year from $70.43 billion a year earlier, an increase of nearly 8.5%.

Workers’ remittances reached a record $41.59 billion in FY26, up 8.6% from $38.3 billion received in the previous fiscal year, providing crucial support to the country’s external position despite a wider trade gap.

“The main reason behind the current account deficit is the widening trade deficit, which was the highest since FY22,” Sana Tawfik, Head of Research at Arif Habib Limited, told Business Recorder.

She noted that imports picked up significantly during the fiscal year, while exports showed little to no growth and did not provide enough support. “Consequently, the weaker trade balance pushed the current account into deficit.”

Meanwhile, Saad Hanif of Ismail Iqbal Securities was of the view that the headline current account figure is broadly balanced and, at around 0.03% of GDP, “is not an immediate cause for concern”.

“However, the composition is less reassuring. A recovery in imports alongside contracting exports is the least favourable combination for the external account, as it suggests domestic demand is rebounding faster than the economy’s ability to generate foreign exchange,” he said.

Similar sentiments were expressed by Waqas Ghani, Head of Research at JS Global.

“On the surface, the current account position looks remarkably composed, but the composition of that composure is what demands scrutiny,” he said.

Massive deficit in June

On a monthly basis, Pakistan posted a current account deficit of $649 million in June 2026, compared with a surplus of $500 million in May 2026. In June 2025, the country had recorded a current account surplus of $220 million.

“The monthly deficit was primarily attributable to higher imports coupled with lower workers’ remittances in Jun 2026, resulting in the cumulative FY26 current account balance shifting into a modest deficit,” said Topline Securities.

Saad Hanif also noted that June’s current account deficit was the widest of the fiscal year, and if that pace continues into FY27, the annual deficit could widen significantly.

“That would warrant caution on the rupee and limit the SBP’s scope for further monetary easing from the current policy rate of 11.5%.

“The near-balanced headline figure should therefore not be interpreted as evidence of durable external stability; rather, it reflects stability underpinned by remittances, with a sustained recovery in exports remaining critical in the new fiscal year.”

During June 2026, exports of goods and services stood at $3.55 billion, compared with $3.2 billion in May 2026 and $3.3 billion in June 2025.

Imports of goods and services amounted to $7.08 billion in June 2026, compared with $6.42 billion in May 2026, while they were $5.92 billion in the corresponding month of last year.

Workers’ remittances clocked in at $3.48 billion during June 2026, easing from the record $4.25 billion received in May 2026 but remaining broadly in line with the $3.4 billion received in June 2025.

The SBP’s reserves stood at $18.5 billion at the end of FY26, compared with around $14.64 billion a year earlier, providing stronger external buffers amid improving macroeconomic stability.

Pakistan’s REER Index

Pakistan’s Real Effective Exchange Rate (REER) has increased to a seven-year high of 106.44 in June 2026 compared to 106.08 in May 2026.

“This reading remains at a 7-year high and is also above the 10-year average of 102.52,” said Topline Securities.

A REER above 100 means the country’s exports are uncompetitive, while imports are cheaper. The situation reverses when REER stands below 100 on the index.

Meanwhile, the Nominal Effective Exchange Rate Index (NEER) increased by 0.64% MoM in June 2026 to a provisional value of 38.14 from 37.9 in May 2026.

What is REER?

As per the central bank, REER is an index of the price of a basket of goods in one country relative to the price of the same basket in that country’s major trading partners.

“The prices of these baskets are expressed in the same currency using the nominal exchange rate with each trading partner. The price of each trading partner’s basket is weighted by its share in imports, exports, or total foreign trade,” the SBP website says.