Current account deficit rises to $624m in July-August

KARACHI: Pakistan’s current account deficit widened in the first two months of the fiscal year 2026 as the trade gap increased due to higher imports amid a pickup in economic activity.

The deficit increased 45 percent to $624 million in July-August FY26, data from the State Bank of Pakistan showed on Thursday. The current account shortfall rose to $245 million in August, up 199 per cent from a year earlier. However, it saw a 35 per cent decline from the previous month.

Awais Ashraf, director of research at AKD Securities Limited, explained that the current account deterioration on an annual basis is largely due to a higher trade and services deficit, accompanied by increased interest payments and dividend repatriation. Despite this, higher remittances have provided some relief. “Current account improves on sequential basis as decline in imports and reduction in interest and dividend repayments overshadowed lower exports, higher deficit in services and weaker remittances,” Ashraf said.

The SBP data showed that the country’s total goods imports increased 9.0 per cent to $10.401 billion for July-August FY26. While this is an increase from the previous year, it reflects an 8.0 per cent decline compared with July. Services imports for this period stood at $2.103 billion, rising 13 per cent year-on-year (YoY). These imports also saw an 11 per cent increase on a month-on-month (MoM) basis.

On the other hand, goods exports grew 10 per cent to $5.288 billion during the first two months of this fiscal year. In August alone, these exports rose by 3 percent compared with the previous year, although they fell by 10 per cent month-on-month. Services exports reached $1.395 billion in July-August FY26, up 12 per cent from the prior year. While these exports increased by 8.0 per cent YoY, they fell by 7.0 per cent on a MoM basis.

Pakistan’s remittances from its overseas citizens increased 7.0 per cent to $6.4 billion in July-August. Remittances stood at $3.1 billion in August, up 7.0 per cent from a year earlier. However, these inflows decreased by 2.0 per cent compared with the previous month.

Sana Tawfik, head of research at Arif Habib Limited, said that the SBP revised the current account deficit numbers for July. She also said that imports are rising due to increased overall demand, and import pressures are expected to persist in the coming months due to the devastating floods. However, Tawfik expects that the deficit will remain at a manageable level, staying within the SBP’s forecast of 0-1 per cent of GDP.

The central bank said in its monetary policy statement that the damage to crops from flooding is expected to further widen the trade deficit; however, this may be partially offset by improved market access to the U.S. Moreover, remittances have remained resilient and may pick up further as experienced during previous episodes of natural disasters.