Pakistan’s trade gap grows in first four months of FY26 despite higher remittances | The Express Tribune

KARACHI:

Pakistan’s fragile external position came under renewed pressure in October as the current account deficit ballooned to $733 million in first four months of FY2026, driven by a surge in imports and weakening export growth that erased much of the improvement seen in recent months. The latest balance of payments data shows that the deficit was more than three times the $206 million recorded from July to October 2025 last year, signalling a sharp reversal of the early-year momentum.

The deterioration in October pushed the overall current account into a deeper deficit for the fiscal year to date. Current Account Balance recorded a deficit of $112 million in October 2025 compared to a surplus of $83 million in September 2025. In the first quarter of FY26 (July-September), Pakistan had already posted a deficit of $621 million, compared to a surplus of $83 million during the same period of FY25.

Goods exports, a key pillar of external earnings, continued to underperform. Pakistan’s external sector came under renewed strain in the first four months of FY26 as the country’s trade deficit in goods and services widened sharply to $11.26 billion, compared to $9.61 billion in the same period of the previous year. The latest data released by the State Bank of Pakistan (SBP) shows that rising imports and a slowdown in export growth have eroded the gains seen last fiscal year, putting the country’s fragile external stability back under pressure.

Exports of goods showed only mild improvement. Total goods exports stood at $10.63 billion in July-October FY26, compared to $10.42 billion in the same period of FY25, a marginal rise of just 2%, reflecting weak global demand and Pakistan’s continuing cost pressures. October exports were recorded at $2.75 billion, down from $3 billion in October FY25, indicating renewed stress in key sectors such as textiles.

Exports of services, however, provided some relief. Services exports increased to $3.03 billion in July-October FY26 from $2.62 billion in the corresponding period last year. Much of this was driven by the IT and telecom segment, where exports rose to $1.44 billion, up from $1.21 billion a year earlier, a healthy gain amid global demand for digital outsourcing. Travel, financial services, and other business services also posted moderate year-on-year increases.

Total imports of goods rose notably to $20.72 billion in July-October FY26, compared to $18.90 billion last year – an increase of 9.6%, as indicated in the memorandum items of the SBP data. The month of October alone saw import payments of $5.27 billion, substantially higher than $4.65 billion recorded in the same month of FY25. The uptrend suggests a rebound in economic activity, but it has also widened the goods deficit to $10.09 billion, up from $8.47 billion last year.

Services imports also climbed to $4.20 billion during the four-month period, from $3.75 billion in July-October FY25. Higher payments in the transport, travel, and financial services categories signalled increased commercial activity and partly reflected elevated freight rates and insurance costs. The overall services deficit widened slightly to $1.16 billion, compared to $1.13 billion last year.

A major drag on the external account remained the primary income deficit, which reached $3.09 billion in July-October FY26, broadly unchanged from $3.08 billion in the same period last year. This category includes profit repatriation by foreign firms and interest payments on external debt, both of which remain elevated due to Pakistan’s heavy reliance on foreign borrowing and rising global interest rates. October alone saw a primary income deficit of $905 million, underscoring the scale of recurrent outflows.

Pakistan’s secondary income account, largely driven by remittances, continued to provide the most significant buffer to the external sector. Workers’ remittances rose to $12.96 billion in July-OctoberFY26, up from $11.85 billion in the same period last year, marking a 9.3% increase. The United Arab Emirates, Saudi Arabia, the UK, and the US remained the major sources of inflows. Despite this improvement, remittances were not sufficient to offset the rapidly widening trade deficit. The overall secondary income surplus increased to $13.61 billion, from $12.49 billion during the previous year’s corresponding period.

The financial account posted a deficit of $605 million in July-October FY26, compared to a much larger $965 million deficit in the same period of FY25. However, foreign direct investment (FDI) remained subdued at $748 million, down from $1.01 billion last year. Portfolio flows were volatile, with October witnessing an outflow of $537 million. These trends highlight persistent investor caution and uncertainty around Pakistan’s macroeconomic outlook and International Monetary Fund-linked structural reforms.

Despite the growing deficits, Pakistan’s overall balance showed only a modest deterioration, supported by reserve accumulation earlier in the fiscal year. SBP’s gross reserves (excluding CRR/SCRR) stood at $14.64 billion by the end of October FY26, significantly higher than $11.33 billion at the start of the year. However, the sharp October current account deficit, combined with higher debt repayments scheduled for the coming months, poses renewed risks for external stability.