A record-breaking $1.2 billion current account surplus, fueled by a sharp rise in workers’ remittances last month, has sparked cautious optimism about the country’s external stability.

This milestone, the highest since 2012, has lifted the State Bank’s foreign exchange reserves forecast and bolstered hopes of a fiscal year-end surplus. Yet, the broader balance-of-payments remains in the red for the fifth straight month, weighed down by weak foreign investment and heavy debt repayments. While the surplus offers a moment of relief, its reliance on temporary factors like import curbs and a remittances spike raises questions about its staying power.

On the other hand, the Pakistan Institute of Development Economics (PIDE) has raised serious concerns about the potential fallout from new trade tariffs on Pakistani goods, recently flagged by US President Donald Trump. Though these tariffs are currently on hold, the think tank warns that their enforcement could deal a heavy blow to Pakistan’s export-driven economy, threatening jobs and growth. In a detailed policy brief, “Navigating the Threat of US Tariff Hikes on Pakistan’s Exports,” it projects that a proposed 29% tariff, stacked on top of the existing 8.6% Most Favoured Nation rate, could push duties as high as 37.6%. This steep increase might slash Pakistan’s exports to the US by 20-25%, costing the country $1.1-$1.4 billion each year. The textile industry, a cornerstone of Pakistan’s $5.3 billion export market to the US in 2024, faces the brunt, with higher costs likely to erode its edge against rivals like India and Bangladesh.

The ripple effects could be dire. Major players might scale back production, jeopardizing over half a million jobs. Beyond textiles, sectors like leather, rice, and sports goods could also take a hit, adding to economic strain. Yet, PIDE sees a silver lining—a chance for Pakistan to rethink its trade playbook. The institute urges swift diplomatic efforts to underscore the shared downsides of these tariffs and safeguard ties with the US. One idea is for Pakistan to lower duties on US goods like machinery or petroleum, creating leverage for talks. Incorporating more American cotton into Pakistani textile production could also strengthen supply chains and possibly unlock tariff relief.

The think tank emphasizes the need to branch out. Tapping into markets like the EU, China, ASEAN, Africa, and the Middle East could open doors for Pakistan’s IT, halal food, processed goods, and sports equipment sectors. At home, cutting energy and logistics costs, streamlining red tape, and sparking innovation are critical to staying competitive. Globally, the proposed US tariffs may breach the World Trade Organization’s 3.4% tariff cap, potentially breaking trade rules. While challenging these tariffs at the WTO is an option, Pakistan’s limited resources could make this tough.

As Pakistani mills rely on American cotton to supply US markets, disrupting this cycle, PIDE argues, would hurt both nations. With proactive diplomacy, bold reforms, and a pivot to new markets, Pakistan could not only weather this storm but come out stronger on the global stage.

Meanwhile, a remarkable surge in workers’ remittances propelled Pakistan’s current account to a historic monthly surplus of $1.2 billion, eclipsing the previous peak of just under $1 billion from 2012. However, the broader balance-of-payments picture darkened for the fifth consecutive month this year, dragged down by sluggish foreign official and private capital inflows against a backdrop of hefty debt repayments. Still, the July-March period holds a positive balance, with a cumulative surplus of nearly $2 billion, fueling optimism that the fiscal year could end with a current account surplus. Buoyed by this, the State Bank of Pakistan has raised its foreign exchange reserves forecast from $13 billion to $14 billion by June, banking on expected foreign inflows following the release of the second IMF loan tranche.

At first glance, the current account surplus paints a picture of external stability. The rupee faces less strain, reserves are climbing, and debt obligations are being met on time—a welcome breather. But this calm is fragile, resting on shaky pillars: a tightly managed trade deficit through unofficial import restrictions, softer global oil prices amid U.S.-led tariff battles, and, crucially, an unexpected remittances boom. In today’s volatile global landscape, even a minor jolt could unravel this delicate balance.

True, lasting stability hinges on a robust financial account. Long-term foreign direct investment (FDI), steady official inflows, and strong export growth are the bedrock of a resilient balance-of-payments position and sustainable reserve buildup. If these streams remain weak, it signals deeper structural flaws in the economy. While the remittances-driven surplus is a lifeline, it’s a missed opportunity if policymakers don’t seize this moment to steer the economy toward a more enduring foundation. Without bold reforms to boost exports and attract investment, Pakistan risks squandering this window to fortify its economic future.

Pakistan’s current account surplus is a rare bright spot, easing pressure on the rupee and boosting reserves. But its foundations—remittances, controlled imports, and low oil prices—are too shaky to promise lasting stability. Without robust reforms to attract foreign investment, expand exports, and fix structural weaknesses, this windfall risks being a missed chance. Policymakers must act swiftly to transform this fleeting reprieve into a springboard for a stronger, more resilient economy.