Pakistan posts current account deficit in January

Pakistan has posted current account (CA) deficit of US$420 million in January 2025 as against a surplus of US$474 million in December 2024.

This was the first CA deficit since September 2024, shrinking the CA surplus during first seven months of the current financial year to US$682 million (which still compares well with a deficit of US$1.8 billion during 7MFY24).

A key reason for the deficit was the increase in goods imports (up by US$560 million MoM), about half of which was due to higher petroleum imports. This showed flat imports, which makes the negative CA balance less concerning. 

Goods trade deficit expanded to US$2.5 billion in January 2025 from US$1.8 billion a month ago, largely due to higher imports (up 11% MoM to US$5.4 billion) while exports fell 4% to US$2.9 billion.

Petroleum imports rose 25%MoM to US$1.6 billion, as compared to an average US$1.2 billion over the previous six months – despite January being an off-peak month for petroleum consumption (lower mobility during winter).

Overall goods imports were nearly flat MoM and petroleum imports fell 12% MoM to US$1.3 billion. The higher imports were due to a temporary difference (SBP data is cash based; and the payment for deliveries of previous months came due in January).

Goods exports were broadly flat around US$2.9 billion, but Textile exports were up a notable 14% MoM to US$1.7 billion. Food exports were down 19%MoM (rice exports fell 11%MoM).

Remittances were reported at US$3.0 billion but are likely to rise in the coming months' with the commencement Ramadan falls in March. Remittances increased 32%YoY during 7MFY25, to US$20.8 billion.

A narrow spread between the interbank and kerb exchange rates and a big outflow of skilled workers in recent years (driven by the economic crisis of 2022-23) were the key drivers for the increase in remittances.

Foreign exchange reserves held by State Bank of Pakistan fell to US$11.4 billion by end January from US$11.7 billion at the start of the month, manlily due to debt repayments of about US$500 million and CA deficit.

Next IMF review is due in early March 2025, a favorable review should unlock the next US$1 billion tranche.

Pakistan is scheduled to launch a US$200 million panda bond auction in China by June 2025.