KARACHI: Pakistan posted a current account deficit (CAD) of $1.174 billion during the first half of 2025-26 compared with a surplus of $957 million in the same period last year, the State Bank said on Monday.

The government has projected a CAD of around $2.1bn, or within 0-1 per cent of GDP, for FY26, anticipating higher imports driven by economic growth.

Experts believe the changing geopolitical situation could disrupt oil prices, putting pressure on Pakistan’s balance of payments as the country relies entirely on imported oil. They warn that any renewed conflict in the Middle East, such as an attack on Iran, could suddenly affect supply chains and push oil prices higher. Rising oil prices would further worsen the country’s current account imbalance.

The State Bank and the government believe that higher imports contribute to the current account deficit, with oil accounting for the largest share of imports. In FY25, the country spent $15bn on petroleum product imports out of total imports of $59bn. Despite these imports, the current account recorded a surplus of $2bn.

Swelling trade deficit driven by higher imports turns current account red

On Monday, international crude oil prices ranged between $59 and $63 per barrel and remained volatile amid fears of a possible attack on Iran.

According to the SBP data, the current account posted a surplus of $98 million in November, but turned into a deficit of $244m in December. Both quarters of the current fiscal year recorded deficits: $737m during July-September and $437m during October-December.

Although the State Bank’s foreign exchange reserves have improved during the current financial year, they remain insufficient to cover petroleum imports for the entire year. During the first half of FY26, the country spent $7.1bn on petroleum product imports, compared to $7.3bn in the same period of FY25.

The government has set an export target of $60bn over three years, but exports depend 35 to 40pc on imported inputs. Weak manufacturing activity and declining cotton production have increased the import bill. Pakistan imported cotton worth $2.3bn in FY25, and production has declined again this year, indicating that more dollars will be required to boost exports. The textile sector remains the largest source of export earnings.

The current account surplus in FY25 helped stabilise market sentiment and the exchange rate, preventing panic in the dollar market.

The trade deficit widened from $14.5bn to $19.2bn in the first half of FY26, sending a clear signal about future trends. Apart from concerns over higher oil prices, the import bill is expected to continue rising as low GDP growth has increased pressure on the government. The government has been held responsible over the past three years for low GDP growth, which has pushed about 46pc of the population below the poverty line.

Published in Dawn, January 20th, 2026