Pakistan’s current account posted a surplus of $349 million in October 2024, a marked turnaround from a deficit of $287 million in the same month last year, according to data from the State Bank of Pakistan (SBP) released on Monday. This marks the third consecutive month of surplus, signaling a potential positive shift in the country’s balance of payments. However, despite the encouraging figures, questions remain about the sustainability of this trend, especially in light of the country’s broader economic challenges.

The surplus for October was primarily driven by a notable increase in remittances, which grew by 7% month-on-month (MoM) and 24% year-on-year (YoY), reaching $3.052 billion. According to Mohammed Sohail, CEO of Topline Securities, the remittance growth was key in offsetting the trade deficit. This positive development, however, needs to be viewed in context. While remittances are a lifeline for Pakistan’s economy, they are also a reflection of the country’s ongoing struggle to create sufficient domestic employment and sustainable growth opportunities.

The surplus figure was initially reported at $119 million for September 2024 but was later revised down to $86 million, highlighting the volatility and the need for a more cautious interpretation of the data.

Breaking Down the Numbers

The breakdown for October 2024 reveals a mixed picture. Pakistan’s exports of goods and services amounted to $3.711 billion, up nearly 12% from the previous year’s $3.327 billion. This increase in exports is a positive sign and is often cited by policymakers as evidence that the country is becoming more competitive globally. However, the nation’s imports rose sharply by nearly 7%, totaling $5.558 billion, further exacerbating the trade imbalance despite the growth in exports.

In the first four months of the fiscal year 2025 (4MFY25), Pakistan’s total exports of goods and services amounted to $13.11 billion, while imports totaled $22.43 billion. This resulted in a large trade deficit, though it was offset by the significant rise in remittances, which grew by almost 35% to $11.85 billion compared to the same period last year.

Economic Context: High Inflation and Import Restrictions

The reduction in the current account deficit has been attributed to a combination of factors, including low economic growth, high inflation, and restrictions on imports. While these measures have helped narrow the deficit, they come with their own set of risks. High inflation erodes domestic purchasing power, while low economic growth raises concerns about future job creation and the ability to attract foreign investment.

The country’s high interest rate environment has also contributed to curtailing the current account deficit by reducing import demand. However, this is a double-edged sword: while high interest rates can dampen imports, they also slow down economic activity, making it more difficult for Pakistan to generate the growth needed to support a healthy trade balance in the long term.

A Temporary Relief or a Sustainable Trend?

The current account surplus for October and the first four months of fiscal year 2025 may offer temporary relief to Pakistan’s strained external accounts, but it is important to consider whether these improvements can be sustained. Pakistan’s reliance on imports—especially for essential goods like energy and raw materials—means that even small increases in import costs or a decrease in export competitiveness could quickly undo these gains.

Furthermore, the country’s heavy reliance on remittances as a primary source of foreign exchange raises concerns about the sustainability of this source of income. While the 24% year-on-year growth in remittances is a positive development, the longer-term stability of these inflows depends largely on global economic conditions and the situation of the Pakistani diaspora in foreign countries, which is subject to international economic cycles and geopolitical factors.

Implications for Exchange Rates and Reserves

A positive current account surplus typically puts upward pressure on the local currency, easing pressure on the exchange rate and providing a buffer for Pakistan’s foreign exchange reserves. However, the situation is far from straightforward. A continued surplus would provide some breathing room for the rupee, which has been under significant pressure in recent years. Conversely, a widening deficit would lead to downward pressure on the currency, draining foreign reserves, and further exacerbating Pakistan’s economic vulnerability.

Given Pakistan’s precarious fiscal position, the current account balance is a crucial indicator for policymakers. Any sustained improvement in this figure could bolster investor confidence, but a reversal or worsening deficit could lead to increased instability in foreign exchange markets and potentially require further intervention by the central bank.

Conclusion: Short-Term Wins, Long-Term Risks

While Pakistan’s current account surplus in October 2024 is an encouraging development, it remains to be seen whether this trend can be sustained. The factors contributing to this surplus—higher remittances, export growth, and import restrictions—are not immune to external pressures, and the country still faces significant economic challenges. High inflation, economic stagnation, and reliance on remittances all point to a need for deeper structural reforms.

As Pakistan moves forward, a continued focus on boosting export competitiveness, diversifying remittance sources, and ensuring sustainable growth will be critical. The current surplus may provide temporary relief, but addressing the underlying issues will be key to ensuring that Pakistan’s economic recovery is both stable and lasting.