C/A slips back into $103m deficit
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Pakistan recorded a current account deficit of $103 million in May 2025, narrowing from a deficit of $235 million in the same month last year but reversing the $47 million surplus seen in April 2025.
Although Pakistan posted a rare current account surplus of $1.8 billion during the first eleven months of FY25 — marking a significant turnaround from the $1.6 billion deficit recorded in the same period last yearexperts caution that underlying external sector vulnerabilities remain a cause for concern.
"The trade deficit expanded in May 2025, increasing to $3.2 billion compared to $2.2 billion in the same period last year," wrote AHL. The overall trade balance posted a deficit of $27 billion in 11MFY25, up from $23 billion during the same period last year.
"We expect the country to post a current account surplus of $1.6 billion in FY25 after 14 years," said the brokerage house. "This growth is mainly due to an increase in remittances by 26% year-on-year to $38.1 billion, in our view."
The surplus was largely driven by a sharp 26% year-on-year jump in workers' remittances, which soared to $38.1 billion. This inflow has helped cushion the impact of a widening trade deficit, as goods imports surged by 11% to $54.1 billion, outpacing the modest 4% growth in goods exports that stood at $29.7 billion.
Exports faced a fresh blow in May 2025, slipping by 19% year-on-year to $2.4 billion, while technology exports, once seen as a potential growth engine, edged down 1% to $329 million. This underperformance underscores Pakistan's struggle to diversify and expand its export base.
Nasheed Malik of Topline Securities noted that Pakistan recorded monthly IT exports worth $329 million in May 2025, reflecting a slight decline of 1% year-on-year but an increase of 4% on a month-on-month basis. These exports were also higher than the 12-month average of $314 million. Notably, this marked the first year-on-year decline in IT exports after 19 consecutive months of growth. Export proceeds averaged $16.5 million per day in May 2025, up from $15.9 million in April 2025.
Cumulatively, IT exports reached approximately $3.5 billion during 11MFY25, showing a strong 19% year-on-year increase. This impressive growth is attributed to several key factors: the expansion of Pakistani IT companies' client base globally, especially in the GCC region; the relaxation by the State Bank of Pakistan (SBP) of the permissible retention limit in Exporters' Specialised Foreign Currency Accounts from 35% to 50%; the allowance of equity investment abroad through these accounts; and the stability of the Pakistani rupee, which has encouraged exporters to repatriate a larger portion of their earnings.
Pakistani IT firms have also been actively engaging with international clients, as demonstrated by their participation in major global events such as LEAP 2025 in Saudi Arabia and Web Summit Qatar 2025, said Malik.
A significant development in FY25 is the SBP's introduction of a new category — Equity Investment Abroad (EIA) — specifically for export-oriented IT companies. Under this provision, IT exporters can now acquire equity stakes in foreign entities by utilising up to 50% of the proceeds from their specialised foreign currency accounts. This measure is expected to further boost the confidence of IT exporters and incentivise the repatriation of export earnings to Pakistan.
Meanwhile, the services sector remains in deficit, posting a gap of $2.7 billion for the period, as service exports failed to offset persistent import demand. The primary income deficit, largely reflecting profit repatriation and interest payments on external debt, stood at a hefty $7.9 billion in 11MFY25.
Adding to the concern is the sharp decline in foreign direct investment (FDI) inflows, which dropped to $1.98 billion, indicating foreign investors' cautious stance amid Pakistan's challenging economic and political landscape.
Analysts warn that the recent surplus is not structural but cyclical, heavily reliant on remittances and import compression. "If imports rebound or remittance growth slows, the surplus could swiftly reverse," a market observer noted.
The outlook for the external account remains uncertain, with potential risks stemming from volatile global oil prices and rising debt servicing needs, both of which could strain Pakistan's fragile external position.
In May 2025, Pakistan's primary income deficit narrowed significantly by 47% year-on-year to $777 million, compared to $1,478 million in May 2024, largely due to the absence of hefty profit repatriation recorded in the same period last year. However, on a month-on-month basis, the deficit widened by 31%.
Meanwhile, the balance on secondary income improved by 12% year-on-year, rising to $3.9 billion in May 2025 from $3.5 billion in May 2024, supported by strong inflows such as workers' remittances. On a month-on-month comparison, however, secondary income declined by 13% from $3.5 billion recorded in April 2025.
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