While Pakistan closed the fiscal year with a rare current account surplus, the broader economic picture remains far from encouraging. Despite the government’s aggressive push for foreign investment and asset privatization, both domestic instability and regional tensions have kept investor sentiment tepid.
Record-high remittances may have offered temporary relief, but underneath the surface lies a fragile economy grappling with low exports, shrinking foreign direct investment, and a growing dependence on debt rollovers and import suppression.
After a slumbering hiatus of fourteen years, Pakistan’s fiscal ledger for FY2024-25 has astonishingly closed in the green, as the current account emerged with a rare surplus — a breath of fiscal air that has given the State Bank of Pakistan (SBP) ample maneuvering room to steer the external front with measured ease entering FY26. The SBP’s freshly disclosed figures unveil a current account surplus of $2.105 billion, a dramatic reversal from the previous fiscal cycle’s $2.072bn red ink. This positive deviation is the fruit borne of disciplined stewardship by both fiscal czars and the central bank, who stitched together prudent policies that reinforced macroeconomic resilience, shielded the exchange rate from undue turbulence, and gave the foreign currency coffer a significant boost.
A standout protagonist in this fiscal turnaround has been the torrent of homebound remittances — a staggering $38.3bn — marking a 27% leap over the preceding year. These vital inflows not only became a keystone of reserve fortification but also stabilized the financial pulse of the rupee. Economic savants note that FY26 has unfurled with an air of optimism: a sterling current account position, fortified reserves crossing the $14bn watermark, a relatively anchored exchange rate, and the continuation of the IMF’s patronage all point towards a cautiously hopeful trajectory.
Furthermore, the geopolitical cushion provided by allied nations added ballast to the external profile, with approximately $16bn in loan rollovers orchestrated in FY25. This show of camaraderie has created space for potential augmentation of bilateral support in FY26. Tentative forecasts peg the external debt servicing burden for the ongoing fiscal within the $23bn to $26bn range — a sum hefty but not unmanageable.
Zooming into the month of June 2025, the current account chalked up a $328 million surplus, a stark divergence from the $84m deficit etched in May. Except for the opening quarter (July-September FY25), which saw a shortfall of $474m, the ledger stayed predominantly in the green. The second quarter yielded a robust $1.492bn surplus, the third mellowed to $820m, and the final quarter posted a more subdued $262m — indicating a tapering arc across the fiscal rhythm. On the trade horizon, measured upticks were observed. Merchandise exports nudged up to $32.295bn against $30.980bn a year prior. Imports, while also swelling, clocked in at $59.076bn — higher than last year’s $53.157bn. Service-sector flows too exhibited slight lift: exports and imports posted $8.394bn and $11.014bn, respectively.
Yet, despite these encouraging fiscal and trade-side signals, international credit raters remain unmoved — a crucial roadblock for foreign capital infusion and sovereign bond floatation. Senior mandarins from the Ministry of Finance have lately lobbied Moody’s for a more generous assessment. Observers believe an upgrade may materialize should the economic pulse sustain its current rhythm into December 2025.
In terms of Foreign Direct Investment (FDI), progress has been modest. The data divulged by SBP reveals a 4.7% uptick in FDI, amounting to $2.457bn for FY25. The final month, June, saw $206.6m in inflows — almost a mirror of the $205m notched in June 2024 — underscoring the government’s limited traction in turning investor sentiment decisively in its favor.
In summation, while the macroeconomic climate shows notable signs of repair and recalibration, the path to long-term fiscal consolidation and global investor confidence remains an uphill expedition — requiring sustained prudence, structural persistence, and perhaps a bit more than polite persuasion.
Despite persistent overtures by the government to court foreign capital, neither domestic conditions nor the regional climate have proved fertile for investor confidence. Financial observers argue that India’s belligerent stance and persistently antagonistic posture have cast a long shadow over Pakistan’s investment profile, branding it a high-risk environment. Simultaneously, the country’s internal political disarray continues to sow uncertainty, further cooling foreign appetite.
The recent conflagration between Iran and Israel has added fuel to this regional volatility, delivering collateral damage to Pakistan’s external trade, with commerce with Tehran plummeting to historical lows. Analysts contend that these dual geopolitical crises have rendered the region commercially inhospitable. They also underscore that even homegrown capital has shied away from the industrial realm, citing policy inconsistency and rising friction between business stakeholders and state decision-makers.
The government, undeterred, pins its hopes on the sale of Pakistan International Airlines (PIA) and other public assets to magnetize foreign inflows in the coming year. Yet early signals suggest that the national flag carrier may likely land in domestic hands, further dimming foreign interest. The overarching privatisation roadmap, once heralded as a magnet for global capital, has thus far failed to yield tangible FDI gains in FY25.
Meanwhile, the State Bank of Pakistan has flagged an additional concern: the rupee has depreciated to a 21-month low on the Real Effective Exchange Rate (REER) index, slumping by 1.22% to 96.61 in June 2025, down from 97.79 in May. While the external account has registered a surplus, foreign reserves have only managed to climb to $14.5bn — enough to cover barely 10 to 12 weeks of restricted imports. This remains eclipsed by the $16bn in rolled-over bilateral loans from China, Saudi Arabia, and the UAE, which continue to act as a lifeline in staving off sovereign default.
Top government officials have rushed to celebrate the current account surplus, often heralded as a symbol of financial health — a signal that a nation exports more than it imports, while receiving robust income and transfer inflows. But this celebratory stance belies the hard truth: Pakistan still hemorrhages dollars through a gaping trade deficit of over $29bn in goods and services, despite draconian import restrictions.
With merchandise exports frozen at a paltry $32bn — a mere 8% of GDP — Pakistan languishes among the weakest global economies in terms of trade dynamism. Simultaneously, foreign private investment remains tepid, hovering around $2.5bn or just 0.6-0.7% of GDP — among the most anaemic figures in the region. Even under the watchful eye of the IMF, financial inflows from multilateral and bilateral backers have shrunk to a trickle.
The financial account lays bare a bleaker picture: lacklustre investment traction, restricted credit channels, and a near halt in external borrowings. These patterns expose deeper systemic frailties. The government’s inability to access global bond markets — blocked by abysmal credit ratings and investor scepticism over the substance of recent macroeconomic tweaks — further underscores the fragility of the fiscal framework.
The much-lauded current account surplus, when dissected, reveals a single overpowering engine: a 27% leap in remittances, climbing to an unprecedented $38bn. That — not a trade boom, not capital inflows — has driven the surplus. It’s a tide lifted not by production but by the diaspora’s remittances, a precarious scaffolding on which to rest national economic stability.
But this remittance windfall is a fleeting cushion, not a cure. It is a temporary sedative, not a structural fix. Building balance-of-payments resilience on this foundation is akin to balancing a house of cards in a gust of wind. It’s no surprise that despite the surplus, the country faces a mounting dollar crunch, rekindling underground currency trade as demand for the greenback outpaces supply.
The long arc of economic sustainability doesn’t bend toward stopgap measures like debt rollovers or import throttling. It demands the hard graft of structural reform — elevating productivity, igniting exports, and cultivating a competitive edge. Without bridging these foundational voids, Pakistan’s balance-of-payments future will remain susceptible to shocks. A surplus born of remittances and repression, rather than dynamism and reform, is no victory — it’s a warning.
The appearance of macroeconomic stability — driven largely by remittances and emergency financing — belies the persistent structural vulnerabilities embedded in Pakistan’s economy. Without deep reforms to boost productivity, enhance competitiveness, and revive exports, the country’s balance-of-payments situation will remain perilously unstable. Celebrating a remittance-fueled surplus while trade deficits balloon and investment stagnates is short-sighted; real progress demands a shift from quick fixes to long-term, export-led growth anchored in policy clarity and institutional credibility.