The State Bank of Pakistan has reported positive balance of payments figures for the year 2024-25, with a surplus of USD 3.7 billion in comparison with a surplus of USD 2.9 billion in 2023-24. This is good news for the economy but a deeper analysis shows many vulnerabilities underlying the BOP computation.

The current account balance has been transformed from a deficit of USD 2.1 billion in 2023-24 to a surplus of USD 2.1 billion in 2024-25. This is due to a big jump in home remittances of over USD 8 billion, implying an extraordinarily high growth rate of 38.3 percent. According to experts, this may be because of the intervention by the SBP for the first time in the foreign exchange market and replacement thereby of hundi/hawala transactions. In the absence of such a big intervention the likelihood is that the current account would have shown a deficit of USD 6 billion. Additionally, strong physical controls  on imports played a role in improving the situation.

Turning to the financial account, there is a big decline in the surplus. It was USD 5.4 billion in 2023-24 but has declined by over USD 3.9 billion to only USD 1.5 billion in 2024-25. The net inflow into the government account has been only marginally higher. It was USD 1.6 billion in 2023-24 which has increased to USD 2.3 billion in 2024-25. Both disbursement and amortization have shown increases. The other inflows into the financial account, especially to the private sector, have turned negative. They were USD 2 billion in 2023-24 but have turned negative by USD 2.6 billion in 2024-25. This should be a matter of concern for the country’s economic managers.

On the other hand, the level of foreign investment has remained unchanged at USD 1.8 billion. There has been a net outflow of portfolio funds. This has happened despite the boom in the stock market in Pakistan, highlighting the continuing lack of confidence of the international investors in the Pakistan economy. The upshot is that the current account surplus remains on very unstable ground, which means greater need for debt for an already highly indebted country, particularly in the context of a low level of foreign direct investment (FDI), which is one of the most reliable sources for the economy in terms of bringing sustainable economic growth.

It is projected by experts that the balance of payments position in 2025-26 may become more fragile without a big increase in home remittances as in 2024-25. Already, after a year of stability in the value of the rupee, there are now signs of a decline in the rupee-dollar parity. No doubt, workers’ remittances during FY25 y-o-y increased considerably by $8.1 billion, but they are a very unreliable resource, given the creeping slowdown in the global economy and rising inflation. Additionally, there has been a severe crackdown in recent years on indirect channels on capital flows which means that the coming years may see only low-level to moderate increases in foreign remittances.

What is the outlook for the balance of payments in 2025-26? The first indicator is the estimated net inflow of external resources into the federal government account. According to the Budget in Brief publication of the federal ministry of finance, the net inflow of external resources in 2025-26 is projected to decline massively from Rs 2,583 billion in 2024-25 to only Rs 105 billion in 2025-26, due to a big jump of 70 percent in external debt repayment. The IMF has also made projections of the balance of payments in the Staff Report according to which the estimate for 2025-26 is a current account deficit of USD 1.5 billion. Further, the financial account is also anticipated to be lower than the level in 2024-25 by USD 1 billion.

It needs to be noted here that current account surplus has been achieved on the basis of a tight austerity regime and at the cost of sacrificing economic growth. In the name of macroeconomic stability, constraints have been placed on imports without which industries cannot function. As a result, our exports have remained stagnant while FDI inflows have shown no growth. Overall, the country is facing gross external financing requirements on average of around $20 billion annually over the medium-term, with severe consequences for the health of the economy. If we want to improve the overall balance of payments (BOP) – which is composed of current account, capital account, and financial account – we must no longer delay the overdue structural reforms recommended by the IMF and other international financial institutions. Bureaucratic over-regulation should end and market-oriented policies should be adopted to fully utilize the hidden potential of the economy. Exports and more exports are the only sure way of improving the BOP position in the long term.