Business Recorder
The current account posted a surplus of USD1.1 billion in March. That is comforting news at a time of skyrocketing energy prices. The impact of higher oil imports will likely be reflected in imports and the current account during April and May. Still, the current account remained broadly balanced in 9MFY26, with a surplus of just USD8 million compared to a surplus of USD1.7 billion in the same period last year. Despite growing oil-related payment risks, the SBP appears to be on track to achieve its full-year current account deficit target of 0.4–1 percent of GDP. Mar-26 was a better month because remittances, helped by seasonal factors, were high, reaching USD3.8 billion, up 17 percent from the previous month. However, on a year-on-year basis, they were down 6 percent. Even so, this was the highest monthly inflow in the current fiscal year so far. Goods imports remained largely flat in Mar-26 at USD4.9 billion, while goods exports stood at USD2.6 billion. There was nothing abnormal in this monthly trajectory. In 9MFY26, imports were up 8 percent to USD46.8 billion, while exports declined 6 percent to USD23.3 billion. As a result, the goods trade deficit widened by 26 percent to USD23.5 billion. The services sector is performing better, with services exports rising 17 percent to USD7.3 billion, outpacing the 10 percent increase in services imports to USD9.5 billion. Overall, the trade deficit widened by 22 percent, or USD4.7 billion, to USD25.6 billion in 9MFY26. Workers’ remittances continued to grow at a healthy pace, rising 8 percent to USD30.3 billion, partially offsetting the widening trade deficit. The problem may grow as the import bill rises, while risks to remittances — especially from the UAE in the medium term — also increase. The import breakdown for Mar-26 is interesting. Petroleum imports excluding LNG, according to SBP data on a payment basis, were down 18 percent, while on a shipment basis, according to PBS data, they were up 13 percent. Average oil prices were up 43 percent year-on-year in March. The impact is likely to become visible in the SBP data for April and May. In 9MFY26, the largest increase was in the transport sector, where imports rose 94 percent to USD2.6 billion. This is evident from rising auto sales and the launch of numerous new cars. The second-largest increase was in food imports, which rose 14 percent to USD6.4 billion, far below the growth seen in transport imports. Apart from textiles and petroleum products, imports in every other subsector increased. The export story is not encouraging. Food exports continue to fall, down 34 percent to USD3.8 billion. Other manufacturing exports declined 5 percent to USD3.0 billion, though engineering goods performed relatively well, rising 32 percent to USD267 million. Textile exports were marginally up by 2 percent to USD13.3 billion. Within textiles, value-added segments such as readymade garments, knitwear, and bedwear performed relatively better, growing 3–7 percent and accounting for around 70 percent of textile exports. The rising star is services exports, which increased 17 percent to USD7.3 billion in 9MFY26. Technology exports were up 20 percent to USD3.4 billion, while other business services performed even better, jumping 28 percent to USD1.6 billion. However, these numbers are still not large enough to have a meaningful impact. Thus, the real star continues to be workers’ remittances, which are growing from an already high base, up 8 percent to USD30.3 billion in 9MFY26. Of this, 20 percent, or USD6.3 billion, is coming from the UAE, and that is at risk of slowing. This could put pressure on the current account in the medium term. Going forward, if the war does not end and oil prices remain high, the SBP may start rationing non-essential imports, with automobiles likely to be among the first affected, given that their imports have almost doubled. The SBP may also raise interest rates and possibly allow some currency depreciation to contain imports. However, if the ceasefire becomes permanent, oil prices may hover around USD80–90 per barrel, up from pre-war levels of USD60–70, for a few months or even longer until the energy supply chain normalises. Even in that case, an increase in interest rates of 1–2 percent cannot be ruled out. However, the currency may not come under immediate pressure. The key is to build foreign exchange reserves. Right now, there is potential for a partial replacement of the USD4.8 billion payment burden — consisting of USD3.5 billion in UAE deposits and a USD1.3 billion Eurobond repayment — through USD2 billion in additional support from Saudi Arabia and a surprise USD500 million Eurobond issue. The authorities say more commitments are expected from Saudi Arabia. Still, concentration risk is rising, and the external position remains tricky. Much will depend on how the war scenario unfolds and what leverage Pakistan can secure beyond the short term.
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