FOR now, Pakistan’s return to a current account deficit in the first half of the fiscal year is less a cause for worry than a reminder of how fragile the external balance remains once growth resumes. The current account has slipped back to a $1.17bn deficit in the first six months of the year — following a surplus of $957m in the same period last year and $2bn over the full year. But the gap remains within the FY26 target of $2.1bn, or 0pc-1pc of GDP.

The gap is blamed on the widening trade deficit that rose from $14.5bn to $19.2bn in July-December, despite continued demand compression. It underlines the extent of the growth challenge that lies ahead for policymakers and the State Bank amid dwindling foreign private and official flows. It also shows that the balance-of-payments problem is not a one-off event but a structural issue even if the immediate triggers remain a massive rise in food imports and a significant decrease in rice exports. The Afghan border’s closure, too, has played a part.

The saving grace for the external account so far has been increased remittances and lower global oil prices. However, these cushions still leave us vulnerable to geopolitical shocks in the Middle East, as they may evaporate in case of regional escalations, particularly involving Iran. Undoubtedly, the containment of the current account deficit and last year’s surplus has played a critical role in anchoring foreign exchange market sentiments, preventing speculative pressure on the home currency.

Now that the return to a current account deficit has dented this sentiment, if not eroded it altogether, we may see renewed pressure on the exchange rate and the SBP further tightening legitimate currency outflows if this trend continues. The emerging situation may force the SBP to again halt the monetary easing it just restarted after several months. A current account deficit is not a disease; it is rather a symptom of what ails the economy: falling agricultural and industrial productivity and policy failures holding exports down and scaring away foreign private investors.

Recent data shows that both outbound shipments and non-debt-creating, long-term foreign investment are plummeting. Prime Minister Shehbaz Sharif has set up an inter-ministerial committee to recommend a strategy to exit the IMF programme. Obviously, such a strategy would focus on building up growth momentum in the next two years.

The committee must understand that there are structural weaknesses in agriculture, manufacturing and investment feeding into external imbalances. Unless growth is anchored in productivity, exports and sustained investment inflows, we will remain stuck in low-growth mode and be vulnerable to the next balance-of-payments shock.

Published in Dawn, January 21st, 2026