KARACHI: Due to the widening trade gap and higher external debt servicing, the country posted a current account deficit (CAD) of $103 million in May compared to a $47m surplus in the preceding month and $1.2bn in March.

Despite the monthly deficit, the current account remained positive with $1.812bn during the first eleven months (July-May) of 2024-25 compared to CAD of $1.572bn in the corresponding period last year.

As the fiscal year draws to a close on June 30, the government is making payments required to complete targets set for the outgoing fiscal year.

It was also noted that the payment for profits and dividends on foreign investments increased significantly during this period, rising to $2.1bn during 11MFY25.

The CAD in May 2024 was $235m.

However, the possibility of ending FY25 with a current account surplus has increased. This would be the most significant achievement for the government, which had been relying heavily on support from multilateral lending agencies and the rollover of loans by friendly countries.

Higher debt servicing costs, swelling trade gap seen as key factors

Analysts said the record remittances, which may exceed $38 billion in FY25, provided strong support to the State Bank to purchase dollars from the interbank market, pay for external debt servicing, and improve foreign exchange reserves.

According to unofficial estimates, the SBP has purchased more than $4bn so far from the banking market.

“The primary benefit of the current account surplus is a stable exchange rate, which provides overall stability to the economy, especially for importers and exporters,” said Aamir Aziz, a textile made-ups exporter.

He said the exporters were selling their proceeds with confidence that the exchange rate would be stable. The same is true for importers, who have no fear of a significant jolt in the exchange rate.

However, recently, importers have complained that the dollar price is higher than the quoted price by the State Bank. They said banks were charging Rs2-3 per dollar more than the quoted price.

Currency experts said the ongoing Israeli aggression against Iran has created great uncertainty, and the exchange rate will reflect the impact soon.

They said the oil prices have already gone up in the international market, and demand for dollars would rise, pushing the greenback prices in the local market. According to the SBP data, the balance on trade in goods and services has shown a significant increase in the deficit. During the 11 months of this fiscal year, the deficit was $27.062bon compared to $22.615bn in the same period last year.

Published in Dawn, June 18th, 2025