Current account turns negative in May as imports rise

KARACHI: Pakistan’s current account fell into deficit in May, reversing the small surplus posted in the previous month as higher imports offset the rise in remittances.

The current account turned into a $103 million deficit in May from a $47 million surplus in April, data released by the State Bank of Pakistan showed on Tuesday. The country reported a shortfall of $235 million in May 2024.

Pakistan recorded a current account surplus of $1.8 billion during the 11 months of the fiscal year ending in June, in contrast to a deficit of $1.6 billion in the same period last year.Awais Ashraf, director of research at AKD Securities Limited, said that the current account has flipped into a deficit due to a rise in imports, high interest payments, increased dividend repatriation and a decline in exports.

“However, a rise in workers’ remittances offered some relief,” Ashraf added.Imports of goods rose to $5.478 billion in May from $5.225 billion in the previous month and $5.014 billion a year before. Imports increased to $54.085 billion in July-May FY25, up 11 per cent from a year earlier.

Exports fell 6.0 per cent month-on-month (MoM) and 19 per cent year-on-year (YoY), totalling $2.430 billion. However, from July to May in FY25, exports rose to $29.691 billion, representing a 4 percent increase compared to the same period last year.

Remittances to Pakistan from citizens working abroad increased to $3.686 billion in May, marking a 16 per cent rise from the previous month and a 14 percent increase from the same month last year. Over the first 11 months of the current fiscal year, remittances rose by 29 per cent, reaching $34.891 billion.

These balance of payments figures come after the SBP kept its key interest rate unchanged at 11 per cent on Monday. The bank has raised concerns about the risk of increasing inflation amid rising geopolitical tensions. It noted that the conflict between Israel and Iran adds uncertainty to Pakistan’s inflation and external sector outlook. The SBP’s Monetary Policy Committee (MPC) mentioned in its post-meeting statement that while imports continue to grow alongside improving economic activity, export growth has slowed, partly due to the challenging global trade environment.

The SBP forecasts the current account to remain in surplus for fiscal year 2025. However, due to an uncertain global trade environment and a projected strong demand for imports, the current account is expected to shift to a moderate deficit in fiscal year 2026. Despite weak net financial inflows so far, the SBP anticipates that its foreign exchange reserves will increase to approximately $14 billion by the end of June 2025.

It said the external outlook remains vulnerable to several risks, primarily arising from heightened geopolitical tensions, fluctuations in international oil prices, potential negative impacts of proposed budget measures, and possible shortfalls in anticipated financial inflows.

Analysts suggest that the SBP will meet its forex reserves target if it secures the expected $1.4 billion in climate financing and if the finance ministry succeeds in borrowing $2 billion from Middle Eastern banks. Pakistan plans to repay part of a $500 million Eurobond in September.

In a briefing following the recent rate cut decision, Central Bank Governor Jameel Ahmad informed analysts that the total repayment for FY25 amounted to $25.8 billion, most of which has already been paid or rolled over. The remaining $400 million is set to be settled within the next two weeks, with some inflows anticipated this month. Looking ahead to FY26, the governor indicated that external debt repayments are expected to remain roughly the same. More details will be provided in the upcoming MPC meeting, scheduled for the end of next month. The governor also expects remittances for FY25 to reach $38 billion, an increase from $31.3 billion in the previous year.