Pakistan’s current account posted a deficit of $245 million in August 2025, marking a noticeable improvement from the $379 million deficit in July 2025. However, it is a significant increase compared to the $82 million deficit recorded in August 2024. The cumulative current account deficit for the first two months of fiscal year 2025-26 stands at $624 million, an increase from $430 million in the same period last year.
The August 2025 deficit was largely driven by a widening trade gap, despite a modest rise in remittances. Exports of goods amounted to $2.50 billion, reflecting a 3% year-on-year increase, while imports surged to $4.98 billion, a 6% rise from the previous year. This resulted in a goods trade deficit of $2.48 billion. The service sector also contributed to the deficit, with a services trade deficit of $437 million. Remittances from overseas Pakistanis totaled $3.14 billion in August 2025, slightly lower than the $3.21 billion recorded in July but still providing crucial support to the external account.
Trade Deficit and Import Surge
A significant increase in imports, particularly in sectors such as petroleum, palm oil, and electrical machinery, has been a key driver of the widening trade deficit. Despite efforts to boost exports, the rising import bill continues to exert pressure on Pakistan’s external account. Analysts suggest that controlling import growth and improving export performance will be essential to reducing the trade imbalance in the future.
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Remittances Provide Modest Cushion
Remittances remain a critical source of foreign exchange for Pakistan. In August 2025, remittances amounted to $3.14 billion, which, although slightly lower than the previous month, still played an important role in offsetting the current account deficit. For the first two months of fiscal year 2025-26, remittances reached $6.35 billion, marking a 7% increase compared to the same period last year. Sustaining this growth in remittances will be crucial to alleviating external sector pressures.
Outlook and Policy Considerations
The current account deficit’s widening trend highlights the need for structural reforms to address the underlying issues. Experts recommend focusing on enhancing export competitiveness, curbing unnecessary imports, and attracting foreign investment. Moreover, maintaining a stable macroeconomic environment and facilitating the continuous flow of remittances will be essential in managing the external account balance in the coming months.
In conclusion, while the current account deficit in August 2025 represents an improvement from the previous month, it underscores ongoing challenges in Pakistan’s external sector. Addressing these challenges will require a multifaceted approach, focusing on trade balance management, investment attraction, and remittance facilitation to ensure long-term economic stability.
