Pakistan’s external account posted a second successive current account surplus in September, on the back of rising exports and buoyant remittance inflows. According to the State Bank of Pakistan, this development marks a “significant turnaround” from the deficit reported for September 2023.

While the current account deficit shrunk to an astonishingly low level during the first quarter of FY25, challenges are ahead. Today, the country’s authorities have a task of maintaining this moment through strategic reforms and key sector support-IT export, under all the pressure again on the current account.

The most promising sign of a positive development in the Pakistan economy is the contracting trade deficit, which posted a year-on-year contraction of 31.1% in October. It had fallen to $1.5 billion from $2.17 billion in October 2023, the country’s long-standing issue and an indicator of Pakistan’s external financial position reflecting its current account deficit. The statistics of the PBS reveal that a monthly deficit fell by 17.7% compared to the $1.82 billion in September. The trade deficit compiled for the first four months of FY2024-25 is currently at $6.97 billion, up 5.6% from $7.39 billion in the same time last year, amidst complex economic conditions.

Improvements are due to several reasons. Reduced import demand, which has been induced by strict government policies targeting the stabilization of foreign exchange reserves, has helped curtail outflows. Even though these restrictions have affected industries that rely on imports, they have helped reduce foreign exchange pressures. In contrast, exports have shown resilience, increasing 10.64% in October to $2.975 billion. The third successive month of growth was realized with the increases varying between 1.67% and 29.27% annually since September last year. October’s exports went up by 4.9% compared to September, while imports declined by 3.9%.

Imports had gone down 8.02% in October at $4.47 billion, the first time that there had been a decline since February 2024. That was also a turnaround from earlier times when gains were being clocked again like in April, a jump of 63.2%. Such stabilization moves made by the government concerning the rupee and CAD have really brought this balance around.

Between July and October, total exports were up by 13.45% to a level of $10.88 billion. Imports registered at a slower pace of 5.17% at $17.85 billion. For this reason, the services and goods trade deficit stands at $6.97 billion, lower than what it was in the similar period last fiscal year when the deficit was $7.387 billion. In the first quarter or July to September, the country registered a services trade deficit as reported by the PBS. In September, services exports increased to $657 million and imports rose to $882 million, and the deficit was $225 million. This represents an improvement of 20.5% from the previous month of August. The services imports of Pakistan were at $2.6 billion in the given period and $1.9 billion for exports. The deficit had been reduced to $698.9 million compared with $893.3 million in the same period of the last year. September experienced a 17% yearly increase in service exports year over year with imports dwindling by 4% to indicate high efficiency rates in the overall export services that will work well as the main tools in terms of diversification for the Pakistan economic foundation.

Pakistan’s foreign direct investment also soared up, recording a growth of 48% in the first quarter of the current fiscal year to $771 million as compared to the same period last year which was only $520 million. Foreign investment in the country had increased by 70%. It had registered $903.5 million during July-September 2024-25 against the same period last year with $530 million. It portrays the positive trends of the financial situation of Pakistan because of continuous stabilization policies and reducing the vulnerability towards external factors.

Pakistan’s external account remained on the mend, posting a second consecutive current account surplus in September 2024, at $119 million. This is a “significant turnaround,” the SBP said, compared with the $218 million deficit posted in September 2023, supported by higher export volumes and strong remittance inflows. Consequently, the current account deficit for the first quarter of FY25 stood at $98 million. This is an astonishing reduction of 92% compared to the deficit amount of $1.241 billion that was registered in the corresponding period last year. Exports recorded a huge growth of 14.1% at $7.87 billion during Q1, whereas remittances showed a growth of 39% at $8.8 billion. ITeS exports registered a strong growth of 33.7% and stood at $876 million compared to $655 million registered in Q1 FY24.

Though the development is positive, yet cautiousness shown by the finance and commerce ministry policymakers of Pakistan is coupled with more than optimistic central banks. A stable exchange rate, lower inflation, and declining interest rates because of the kick-started successful program of the IMF can mean a jump in imports would again test the balance of the current account so the government has to support the export sector more particularly IT and ITeS.

The positive Q1 results will have to be weighed, however, against the related lower imports, spending cuts, and an economic slowdown that has pushed up unemployment. Without structural reforms meant to increase industrial production or ease business operations for foreign investors, these gains are likely to erode sharply. IT is a sector that needs to be promoted as the agricultural sector has suffered setbacks, and the sector cannot provide significant contributions to fiscal earnings. With the ability to increase exports and strengthen foreign reserves, IT has emerged as an important area for growth in the economy.

Indeed, some signs indicate a recovery for the economy-a manageable interest rate under control inflation and an effective IMF program. However, the vulnerability is still present there. Until then, this growth cannot be sustained firmly. Imports are on the increase lately and utility costs will further jump as IMF mandates taxes increase that and, within a short period, the inflation rate would surge back into traditional levels.

Rather than celebrating short-term gains, the government should be transparent about the challenges ahead in the economy and work towards building resilience for inevitable tests. Hopefully, past lessons on similar improvements being squandered will guide a more sustainable approach to economic resilience.

The optimist approach is drawn from improvements in external accounts in Pakistan, but gains are fragile without deeper economic reforms. The government should take proactive steps in building a resilient foundation for sustained growth in the economy when it faces expected pressures from the rise in imports and cost-push inflation through IMF measures. Open communication to the public and a forward-looking approach to economic reform will ensure that these gains do not fade and place Pakistan on the road toward long-term stability and growth.