Editorial
Celebrations surrounding a reported surplus of USD 944 million in Pakistan’s current account from July to November 2024 stand in stark contrast to the nation’s overall financial health. While a surplus marks a significant turnaround from a staggering deficit of USD 1,676 million during the same period in 2023-24, the gains are overshadowed by troubling declines in the financial account, which fell from a surplus of USD 3,598 million to USD 1,282 million in the same timeframe.
The cumulative improvement in the current account—amounting to an impressive USD 2,620 million—does not reflect a balanced recovery. The external balance remains precarious, with foreign exchange reserves seeing a moderate rise of nearly USD 2.6 billion. Had the financial account not worsened, reserves could have approached USD 14.5 billion, sufficient for three months of imports.
Interestingly, the current account’s improvement is laced with contradictions. Despite a robust 33.6% increase in workers’ remittances—driven by a stabilization of the rupee’s exchange rate—the trade deficit in goods and services widened by 7.3% due to import growth outpacing exports. This raises concerns about sustainability over the long term, especially given the global economic context.
On the financial front, although foreign direct and portfolio investments grew from USD 859 million to USD 1,263 million, this level remains disappointing relative to the expectations of the Sustainable and Inclusive Financial Corporation (SIFC). Compounding matters, net government loan inflows have declined significantly, with disbursements dropping 38.4% to USD 2,097 million compared to the previous year.
Overall, amid the current account surplus, ominous signs loom as inflows from varied sources dwindle, notably from bilateral and multilateral agencies, where only USD 980 million has been received against an annual target of USD 1000 million. This shortfall raises alarms about meeting Pakistan’s estimated external financing needs of USD 19,393 million for 2024-25. If these trends continue, the upcoming IMF review in March could reveal serious concerns about Pakistan’s financial viability under the Extended Fund Facility, potentially leading to loan reprofiling requests and a darkening risk perception for the economy.
