ISLAMABAD – Pakistan current account deficit widened sharply to $733 million in the first four months of fiscal year 2026, driven by rising imports and stagnant exports, according to State Bank of Pakistan data released this week. The surge marks a 256% increase from the same period last year, raising concerns over reserve adequacy amid external debt pressures.
The deficit reflects a broader imbalance in trade dynamics, with imports outpacing exports despite policy efforts to curb non-essential inflows. Officials warn that without swift import management, Pakistan risks depleting its $14.6 billion foreign reserves faster than anticipated. This development, tracked closely by regional economists, underscores vulnerabilities in South Asia’s largest economy and could influence bilateral trade ties with neighbours like India and Afghanistan.
Rising Imports Pakistan Drive Current Account Deficit Spike
Pakistan’s current account deficit reached $733 million for July-October FY26, as per the State Bank of Pakistan’s Balance of Payments summary. This figure contrasts with a $206 million deficit in the prior year’s corresponding period. The escalation stems primarily from a 15% rise in goods imports and a 12% increase in services imports, totalling $18.2 billion in value.
State Bank data highlights how rising imports Pakistan have overwhelmed export performance. Goods exports grew by just 2% to $7.1 billion, hampered by global commodity price fluctuations and logistical disruptions. Services exports, including IT and freelancing, added $2.1 billion but failed to offset the import surge. Remittances, a key buffer, held steady at $7.5 billion, yet could not prevent the current account deficit from ballooning.
In September alone, the current account posted a modest surplus of $110 million, narrowing the quarter-one cumulative deficit to $594 million. However, October’s $112 million shortfall pushed the four-month total higher. Jameel Ahmad, State Bank Governor, noted in the October Monetary Policy Statement that “while inflows remain supportive, the current account deficit is likely to stay within 0-1% of GDP for FY26, contingent on disciplined fiscal measures.”
This pattern of rising imports Pakistan echoes historical trends but intensifies in 2025 due to post-flood recovery demands. Petroleum products alone accounted for 25% of import growth, reaching $4.8 billion, while machinery and transport equipment surged 20% to $3.2 billion. Discretionary items, such as sugar and electric vehicles, added $1.1 billion, often linked to political directives rather than productive needs.
Pakistan Trade Deficit 2025 Widens Amid Export Challenges
The Pakistan trade deficit 2025 has expanded to $15.5 billion in the first five months of FY26, up 37% year-on-year, according to Pakistan Bureau of Statistics figures cited in official Ministry of Commerce updates. This marks the goods trade gap alone, excluding services, and feeds directly into the broader current account deficit.
Exports totalled $11.3 billion from July to November, a mere 1% increase, plagued by a 15% drop in orange shipments to Afghanistan following trade suspensions. Textile exports, Pakistan’s mainstay, rose 3% to $6.2 billion but faced stiff competition from Bangladesh and Vietnam. Imports hit $26.8 billion, with a 12% jump in raw materials and consumer goods.
“Pakistan trade deficit 2025 projections now hover at $28-30 billion for the full year, unless export incentives accelerate,” stated a Ministry of Commerce spokesperson in a November press release. The document emphasised the need for diversification into high-value agro-processing, such as value-added rice and leather goods, to counter the imbalance.
Foreign direct investment inflows plummeted 26% to $412 million in 4MFY26, signalling waning investor confidence amid the current account deficit pressures. Portfolio investments added $289 million, but volatile global rates limit further gains. These trends amplify the Pakistan trade deficit 2025, straining bilateral relations in South Asia where shared supply chains amplify spillover effects.
Import Management Pakistan: Calls for Strategic Reforms
Effective import management Pakistan emerges as a critical lever to tame the current account deficit. The State Bank’s October report advocates shifting from ad-hoc restrictions to a merit-based system, akin to Singapore’s model, where permits prioritise inputs for export-oriented industries.
Under this approach, non-essential imports like luxury vehicles and excess sugar would face scrutiny, while capital goods for manufacturing receive fast-tracking. “Import management Pakistan must link privileges to export outcomes, curbing speculation and rewarding productivity,” the report recommends. A proposed digital evaluation cell, jointly run by the State Bank and Ministry of Commerce, would use real-time data to assess applications.
Historical data supports urgency: In FY25, lax controls contributed to a $2.1 billion overshoot in projected imports. Current measures, including higher duties on 1,200 tariff lines, have slowed some inflows but not enough. Officials project that rigorous import management Pakistan could shave $1.5 billion off the current account deficit by mid-FY26.
Regional implications loom large. A persistent current account deficit could pressure the Pakistani rupee, already at PKR 278 per USD, affecting remittance flows from Gulf states and trade with India, where bilateral deficits exceed $10 billion annually. South Asian economies, interconnected via SAARC frameworks, face collective risks from such imbalances, potentially stalling intra-regional commerce growth.
Background: Evolution of Pakistan’s External Imbalances
Pakistan’s current account deficit has fluctuated wildly over the past decade, peaking at 6.3% of GDP in FY18 before narrowing to a 0.3% surplus in FY24 through IMF-mandated austerity. The FY26 rebound reflects rebounding domestic demand post-floods, which damaged $30 billion in assets last year.
State Bank archives show imports consistently outstripped exports by 2:1 ratios since 2020, with rising imports Pakistan tied to energy crises and urbanisation. The FY25 trade deficit closed at $24.8 billion, setting a precarious baseline for 2025. Government data from the Ministry of Finance’s Economic Survey underscores remittances’ role, contributing 8% to GDP and cushioning 70% of the current account deficit historically.
Yet, structural issues persist: Low value addition in exports limits competitiveness, while import dependence on China (45% of total) exposes vulnerabilities to global disruptions. The current account deficit trajectory now tests the government’s export-led growth pledge under the IMF’s $7 billion Extended Fund Facility.
What’s Next in Pakistan Current Account Deficit
Policymakers eye export liberalisation, including tax rebates for SMEs and refinancing at 5% rates for value-added processing. A National Export Board, announced in September, aims to target $35 billion in shipments by FY27. On imports, phased digital licensing starts January 2026, focusing on merit-based approvals.
Success hinges on coordination: The State Bank plans quarterly reviews of the current account deficit, while the Ministry of Commerce drafts incentives for agro-exports like processed pulses. Failure to act could force emergency borrowing, eroding South Asia’s confidence in Pakistan’s recovery.
In conclusion, addressing the Pakistan current account deficit demands urgent, data-driven reforms to harness rising imports Pakistan for growth rather than strain. Stabilising this front will fortify the nation’s economic footing in a volatile region.
Published in SouthAsianDesk, December 8th, 2025
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