What Is the Current Account and Why Does Pakistan Keep Running a Deficit?

Every Pakistani feels the consequences of the current account — in the price of fuel, the value of the rupee, and how often the country needs an IMF bailout. Here is how it actually works.

By Mehmood ul Hasan Qadir
Economist & Financial Analyst | Dubai, UAE

Executive Summary

• The current account records every economic transaction between Pakistan and the rest of the world — goods, services, income, and transfers.
• Pakistan has run a current account deficit for most of the past two decades, peaking at $18 billion in FY2018 — equivalent to roughly 6% of GDP.
• FY2025 produced Pakistan’s first full-year current account surplus in 14 years, driven almost entirely by a record $38.3 billion in remittances — not by export growth.
• For the first eight months of FY2026, the current account has returned to a deficit of $700 million, as the trade gap widens again.
• The structural cause of Pakistan’s recurring deficit has not changed in 30 years: the country consistently imports far more than it exports, and it lacks the domestic productive capacity to close that gap.

The Opening Scene

In June 2018, Pakistan’s current account deficit hit $18 billion — the highest in the country’s history at the time. Foreign exchange reserves had fallen to cover less than two months of imports. The rupee was in freefall. The incoming government had little choice but to approach the IMF for a bailout. It was Pakistan’s 22nd IMF programme.^[2]

Most Pakistanis knew something had gone badly wrong. Prices were rising. The rupee was weakening. Imported goods were becoming unaffordable. But very few could identify what had actually broken — the mechanism that linked rising import bills to a currency crisis to an IMF queue. That mechanism has a name: the current account. Understanding it is the single most important piece of economic literacy for any Pakistani who wants to make sense of why this cycle keeps repeating.

The Core Question

What is the current account, what are its components, why does Pakistan keep running a deficit, and what does that deficit actually do to ordinary Pakistanis? This explainer answers each of those questions with current data and no jargon.

What the Current Account Actually Is

The current account is one of the two main sections of a country’s balance of payments — the comprehensive record of all financial transactions between a country and the rest of the world. Think of it as Pakistan’s national income statement with the outside world.

It has four components:

1. Trade in goods — the difference between what Pakistan exports (textiles, rice, leather, sports goods) and what it imports (petroleum, machinery, chemicals, food). This is almost always Pakistan’s largest deficit. In December 2025 alone, goods imports reached $5.74 billion against exports of $2.75 billion — a monthly trade gap of $2.99 billion.^[6]

2. Trade in services — the difference between services Pakistan sells abroad (IT exports, shipping earnings) and services it buys (freight, financial services, royalties). Pakistan typically runs a deficit here too, though the growing IT sector is slowly improving this position.

3. Primary income — payments flowing in and out for the use of capital and labour. For Pakistan, this is mostly outflows — interest payments on its $138 billion in external debt and profit repatriation by foreign companies operating in Pakistan. This component is persistently and heavily negative.^[1]

4. Secondary income (transfers) — money moving across borders without a corresponding economic transaction. This is where remittances live. The $38.3 billion that overseas Pakistanis sent home in FY2025 sits here. So does foreign aid. This is currently Pakistan’s only strongly positive component.^[2]

Add all four together and you get the current account balance. A surplus means Pakistan received more from the world than it sent out. A deficit means the opposite — and Pakistan must finance that gap by borrowing, drawing down reserves, or attracting foreign investment.

Pakistan’s Current Account: A Brief History of the Problem

Pakistan has run a current account deficit in the vast majority of years since independence. The structural reason is consistent: the country imports significantly more than it exports, and the gap is large enough that remittances and aid can only partially offset it in most years.^[1]

The deficit widened dramatically from 2015 to 2018, reaching $18 billion — roughly 6% of GDP — by June 2018. The drivers were textbook: CPEC-related machinery and equipment imports surged, oil prices rose, and exports remained stagnant. Reserves collapsed. The rupee lost over 30% of its value in twelve months. Pakistan entered its 22nd IMF programme.^[2]

A period of forced compression followed — imports were suppressed through administrative controls, high interest rates, and a deliberately weaker rupee. The current account narrowed, not because exports grew, but because Pakistan could no longer afford to import. This is an important distinction. A deficit that shrinks because a country is producing and exporting more is healthy. A deficit that shrinks because a country has been forced to buy less is not — it signals economic contraction, not competitiveness.^[3]

FY2025 produced the first genuine headline improvement in years: a full-year current account surplus of $1.81 billion, with March 2025 alone recording a record monthly surplus of $1.2 billion. The SBP described it as the highest current account surplus in 22 years. The surplus was not driven by export growth. It was driven by a 27% surge in remittances to $38.3 billion — money that overseas Pakistanis sent home from Saudi Arabia, the UAE, the UK, and elsewhere. Remove remittances from the equation and Pakistan’s current account position in FY2025 would have been deeply negative.^[7]

By the first eight months of FY2026, the account had returned to a deficit of $700 million. The trade gap is widening again as imports recover with economic activity. The structural position has not improved.^[4]

Why Pakistan Keeps Running a Deficit

An Export Base That Is Too Narrow and Too Static

Textiles account for approximately 60% of merchandise exports. The sector has not fundamentally upgraded in 20 years. Pakistan competes on cheap labour and low-cost fabric — the same position Bangladesh and Vietnam occupy, but with higher energy costs and worse logistics. The country has never developed a second export pillar of comparable scale. IT services are growing — crossing $3.2 billion in FY2024 — but represent less than 11% of the textile sector’s export value.^[3]

An Import Bill That Is Structurally Unavoidable

Energy is the dominant import. Pakistan produces insufficient domestic oil and gas to meet its needs, and the circular debt crisis in the power sector has made the country chronically dependent on imported fuel. In FY2025, petroleum and related energy products accounted for roughly 28% of the total import bill. No short-term policy adjustment eliminates this dependency. Only a fundamental energy transition — years away at minimum — would structurally reduce it.^[3]

Debt Service as a Growing Drain

Pakistan’s external debt stood at $138 billion as of December 2025. Servicing that debt — paying interest and principal to foreign creditors — creates a continuous outflow through the primary income component of the current account. As debt has grown over decades of deficit financing, the servicing burden has grown with it, creating a self-reinforcing dynamic: deficits require borrowing, borrowing increases debt, debt increases outflows, outflows widen the deficit.^[1]

Key Data

Indicator	FY2018	FY2022	FY2024	FY2025	8M FY2026
Current Account Balance	-$18.0bn	-$17.4bn	-$0.7bn	+$1.81bn	-$0.70bn
Current Account as % GDP	-6.1%	-4.7%	-0.2%	+0.5%	—
Goods Exports	$24.8bn	$31.8bn	$28.3bn	~$30.0bn	—
Goods Imports	$55.8bn	$72.4bn	$54.5bn	~$58.0bn	—
Workers’ Remittances	$19.6bn	$31.2bn	$30.25bn	$38.3bn	$26.5bn
External Debt	~$95bn	~$126bn	~$131bn	~$135bn	$138bn

What This Means for You

The current account deficit is not an abstract macroeconomic statistic. It has direct, tangible consequences for every Pakistani.

When the current account deficit widens, Pakistan needs dollars it does not have. To get them, the government borrows from the IMF, from Gulf states, from international banks. Each dollar borrowed comes at a cost — interest, conditionalities, policy constraints. The IMF programme currently running requires Pakistan to raise energy tariffs, reduce subsidies, broaden the tax base, and hold interest rates high enough to attract foreign capital. Those conditions are not arbitrary bureaucratic demands. They are the price Pakistan pays for spending more than it earns from the rest of the world, year after year.^[9]

If you run a business that imports raw materials, machinery, or finished goods — or a business that pays energy bills linked to imported fuel — the current account deficit is in your cost structure. If you hold savings in rupees, the deficit’s pressure on the exchange rate erodes their real value over time. If you pay taxes, a portion of that revenue goes toward servicing the external debt that accumulates when deficits are financed by borrowing.^[3]

What Needs to Change

Pakistan’s current account problem cannot be resolved by managing it more cleverly each year. The country needs a genuine expansion of its export base — more sectors, higher value per unit, more reliable supply chains — and a credible strategy to reduce import dependency in energy. Both require sustained policy commitment across multiple governments. Pakistan’s record on that front is poor. Every improvement in the current account so far has reflected either a crisis-induced compression of imports or a temporary surge in remittances. Neither is a substitute for building an economy that earns more from the world than it owes.^[9]

References

1. State Bank of Pakistan. Governor’s Annual Report 2024–25. Karachi: SBP, 2025.
2. State Bank of Pakistan. Balance of Payments Data, FY2018–FY2026. Karachi: SBP, 2026.
3. Ministry of Finance. Monthly Economic Update and Outlook, April 2026. Islamabad: Government of Pakistan, 2026.
4. Shahzad, Asim. “Current account slips into $700m deficit.” Express Tribune, March 16, 2026.
5. Bureau Report. “Pakistan’s trade deficit widens, pushing current account negative.” Dawn, January 19, 2026.
6. ProPakistani Staff. “Pakistan’s Current Account Turns Red in December 2025.” ProPakistani, January 19, 2026.
7. Press Trust. “Pak’s current account posts record surplus of $1.2bn.” Business Standard, April 17, 2025.
8. Trading Economics. Pakistan Current Account Historical Data. tradingeconomics.com.
9. Hasan, Raza. “Pakistan’s Balance of Payments Crisis: Causes, Challenges, and Path to Stability.” The Friday Times, January 13, 2026.