Pakistan’s foreign-exchange position has improved notably since the turbulent time of FY23. The country’s total forex reserves were at a precarious low of $9.16 billion at the end of June 2023, and rose to $13.99bn in June 2024 and then to $19.27bn in June 2025. But beneath the surface calm, liquidity pressures and structural weaknesses continue to simmer.

Massive forex liquidity is required to service external debts, import goods and services, and repatriate funds abroad by multinational companies operating in Pakistan.

While speaking at a press conference in July in Karachi, State Bank Governor Jameel Ahmed had said $25.9bn will be spent on external debt servicing during this fiscal year. That’s a huge amount considering our balance of payments (BOP) position. On the other hand, imports of goods and services continue to outpace export growth.

According to the latest BOP statement, Pakistan’s imports of goods and services together consumed $18.57bn in the first three months of FY26. Against this, exports of goods and services fetched only $10.1bn, leaving a large total trade deficit of $8.46bn.

Pakistan’s crisis phase may be over, but lasting stability is far from secured with the current calm reflecting discipline, but not self-sufficiency

Even partial success in securing the planned $16bn rollovers of bilateral funding from friendly countries, including Saudi Arabia, China, Qatar, and the United Arab Emirates, and the continuation of the International Monetary Fund’s (IMF) lending could help meet the external debt servicing requirement of $25.9bn.

But managing a massive total trade deficit of around $35bn during this fiscal year (assuming the deficit seen in the first quarter would not expand dramatically) will be the real challenge for our economic managers — and a litmus test of the reserves and the rupee’s stability.

The IMF projects our external debt servicing requirement over the next five years (including repayments to the Fund itself) to average around $22bn.

A spike in oil or food prices, or a dip in exports and remittances, could quickly erode this fragile stability. Yet for now, several developments have steadied the short-term outlook. The IMF programme remains the cornerstone. In mid-October 2025, Islamabad reached a staff-level agreement with the Fund for a $1.2bn tranche, following earlier disbursements under the same arrangement. Confidence improved after Pakistan repaid a $500 million Eurobond on schedule in September 2025, earning investor praise.

The rupee’s performance in 2025 also mirrors this temporary calm. Despite a current account deficit of $594m in the first quarter of this fiscal year, the rupee has not only remained stable but has rather gained a little less than 1pc so far. (At the end of June, the rupee was at 283.76 to the dollar, but on Oct 22, it closed at Rs281.05). This steadiness reflects improved inflows, central bank support, policy continuity under the IMF umbrella, and continued monitoring of capital flight, all helping anchor sentiment and deter speculation.

Yet vulnerabilities remain. The current account deficit reached $594m during July–September 2025, compared with $502m in the same quarter a year earlier. In July alone, it widened to $254m. These modest but persistent gaps show how small fluctuations in exports, imports, or remittances can swiftly alter the balance — proof that Pakistan’s external stability is more managed than secured.

The core issue is the stagnation of exports. The recent export slump (goods exports fell 3.88pc in July-September 2025 to $7.59bn from $7.91bn in the year-ago period) cannot only be linked to weak demand and supply-side constraints but also to disruptions caused by recent border conflicts and wars with India and Afghanistan, which have hindered overland trade and heightened regional uncertainty.

Pakistan appears to have crossed the immediate crisis threshold. The IMF’s support line, stronger reserves, and improved debt discipline have helped restore a measure of calm. But this stability remains fragile and dependent on one-off inflows — IMF tranches, bilateral deposits, and central bank interventions — rather than on self-sustaining growth in exports, remittances, or productivity.

Pakistan’s external position remains highly sensitive to overlapping vulnerabilities. Large annual debt maturities mean even brief disruptions in refinancing or spikes in global interest rates could trigger abrupt fiscal or monetary adjustments. The economy’s dependence on imported energy and food items keeps it exposed to commodity price swings, while thin market depth fuels exchange-rate premiums and speculative volatility.

External shocks — from geopolitical flare-ups to climate disasters — continue to exact a toll. The 2025 floods alone caused losses estimated at Rs822bn (around $2.9bn), according to the latest official estimate, showing how easily progress can unravel.

Pakistan must now shift from crisis management to structural reform. The immediate goal should be to secure longer-tenor concessional financing from multilaterals and friendly nations while diversifying funding through green, panda, and diaspora bonds to smooth out debt maturities and strengthen buffers.

Reducing import dependence is equally critical. Reforms in the energy sector, including addressing circular debt and promoting local substitutes for key imports, can limit external strain. Rationalising tariffs and non-tariff barriers would help safeguard essential supplies without distorting trade.

Export and remittance growth must become the next front. Improved logistics, trade facilitation, and digital connectivity can raise export competitiveness, while engaging the diaspora through formal remittance channels could yield substantial inflows. Even small percentage gains in these flows could ease financing pressures significantly.

Pakistan’s crisis phase may be over, but lasting stability is far from secured. The current calm reflects discipline and external support, not yet self-sufficiency. The stronger reserves and steadier rupee are encouraging, but they mark only a base camp, not the summit.

Published in Dawn, The Business and Finance Weekly, October 27th, 2025