Current Account Surplus in Pakistan: August 2024 Insights

The current account of Pakistan has shown some positive signs recently, particularly in August, where it recorded a small surplus of $75 million. This is a notable shift, especially when considering that the deficit for the July-August period was only $171 million, which is a staggering 81 percent lower than the same timeframe last year. This improvement can be attributed to several factors, including a decrease in commodity prices and a slower-than-expected rise in domestic demand.

As we look ahead to FY25, the current account is expected to maintain its surplus, bolstered by the performance of home remittances. These remittances have surged by 44 percent, amounting to $5.94 billion for the July-August period. This increase is largely due to more individuals seeking opportunities abroad and stricter regulations on the currency grey market, which have reduced the demand for sending money overseas. The positive trend in remittances is a clear indicator of the benefits of achieving macroeconomic stability.

However, the trade deficit in goods and services has also seen an increase, reaching $5.14 billion in the same period, which is a 19 percent rise compared to last year. The primary income balance reflects a similar trend, with a deficit that is 33 percent higher year-over-year. Overall, the combined trade and primary deficits were $1.14 billion higher in the first two months of this fiscal year. Despite these challenges, the current account deficit has shrunk by $722 million, showcasing the resilience of remittances.

Looking at imports, the bill is expected to decrease due to falling oil and commodity prices. Brent oil prices have plummeted by 45 percent from their peak in 2022, and palm oil prices have nearly halved. These commodities have historically placed significant pressure on the current account and the currency, particularly in FY22. The global commodity supercycle, which was fueled by the aftermath of COVID-19 and the Ukraine conflict, appears to be winding down, leading to a decrease in prices.

In August 2024, imports totaled $8.75 billion, marking a 7 percent increase from the previous year. This growth is primarily driven by the petroleum sector, which saw a 23 percent increase to $2.67 billion, while machinery imports also rose by 15 percent. Conversely, food imports fell by 18 percent to $1.07 billion. On the export front, there was a 14 percent increase, reaching $5.07 billion in July-August FY25. The food group performed exceptionally well, with a 42 percent increase to $1.01 billion, while textile exports saw modest growth, rising by 5 percent to $2.92 billion.

Textile exports reached $1.64 billion in August, the highest level in 26 months, despite the challenges posed by rising energy costs and higher income taxes. One textile exporter expressed concern, stating, "We have orders, but we’re fulfilling them at a loss." This raises questions about the sustainability of the sector's strong export performance moving forward.

Interestingly, there is a discrepancy between the trade balance figures reported by the State Bank of Pakistan (SBP) and the Pakistan Bureau of Statistics (PBS). The SBP reported a trade deficit of $4.67 billion, which is 26 percent higher than the PBS figure. This unusual situation suggests that some pending payments are being cleared, temporarily inflating SBP imports. Once these payments are processed, the current account may indeed turn positive.

In the services sector, exports continue to grow, with technology imports rising by 27 percent in August to $298 million, surpassing the 12-month average. This growth reflects the expanding potential of IT companies, which are repatriating more funds due to improved macroeconomic conditions. The remittance story aligns with the IT sector's growth, as freelance export proceeds also contribute significantly to the economy.

The current account's trajectory appears to be on an upward trend, primarily driven by remittances and a potential decrease in imports due to falling commodity prices. If this positive momentum continues, Pakistan's current account could remain in surplus, which is essential for bolstering foreign exchange reserves. As the country navigates these economic challenges, the focus should remain on sustaining this growth and ensuring that the benefits of macroeconomic stability are felt across all sectors.