Trade deficit deepens as Pakistan's external fragility resurfaces in FY26

Karachi [Pakistan], February 18 (ANI): Pakistan's external position has again come under strain during the first seven months of FY 2025-26, as a ballooning trade deficit offset improvements in remittances and services exports.
Citing the latest balance-of-payments data issued by the State Bank of Pakistan, the country recorded a current account deficit of USD 1.07 billion during July-January FY26. This marks a sharp reversal from the USD 564 million surplus registered in the same period last year, as reported by The Express Tribune.
According to The Express Tribune, the deterioration was primarily driven by a steep rise in imports, which outpaced export earnings. The merchandise trade gap widened to USD 18.4 billion, compared to USD 14.1 billion a year earlier.
Goods exports declined to USD 18.26 billion from USD 19.33 billion, while imports surged to USD 36.66 billion, reflecting a recovery in domestic demand and the relaxation of earlier import curbs.
Purchases of industrial raw materials, energy supplies, and capital equipment contributed to nearly 10% year-on-year growth in imports. Meanwhile, export growth lost momentum after a modest rebound in the previous fiscal year.
The broader goods and services deficit expanded to USD 20.47 billion, up from USD 15.88 billion last year. Although services exports rose to USD 5.66 billion, supported largely by IT and telecommunications, they failed to compensate for the widening goods deficit.
IT and IT-enabled services remained the dominant segment within services exports, generating USD 2.61 billion. Remittances continued to offer relief.
Inflows from overseas Pakistanis climbed to USD 23.20 billion, lifting the secondary income surplus to USD 24.73 billion. However, the primary income deficit, which includes external debt servicing and profit repatriation, stood at USD 5.33 billion, as cited by The Express Tribune.
On the financing side, the financial account posted a net outflow of USD 1.35 billion. Foreign direct investment declined to USD 982 million, while portfolio flows remained negative, as repayments exceeded fresh inflows.
Despite mounting external pressures, foreign exchange reserves rose to USD 17.44 billion by the end of January FY26, supported largely by multilateral and bilateral loan disbursements, highlighting Pakistan's continued dependence on external financing to stabilise its fragile economy, as reported by The Express Tribune. (ANI)