Pakistan’s external sector shows resilience despite regional crisis,global headwinds in FY 2025-26

ISLAMABAD, (APP - UrduPoint / Pakistan Point News - 11th Jun, 2026) Pakistan's external sector maintained a positive trajectory during FY25-2026, supported by prudent macroeconomic management, steady remittance inflows, strengthened foreign exchange reserves, and a largely balanced current account position despite mounting global and regional challenges.

According to Economic Survey 2025-26, launched by the Minister of Finance and Revenue, Senator Muhammad Aurangzeb here on Thursday, Pakistan's external account demonstrated notable improvement through the third quarter of FY2026, before the outbreak of the middle East crisis in February 2026 disrupted regional trade and financial markets.

While goods exports remained under pressure due to declining food exports, particularly rice, amid weak global demand and flood-related agricultural losses, services exports continued to perform strongly.

According to the economic Survey, the country's expanding information technology sector emerged as a key driver of export growth, helping offset weaknesses in traditional export categories.

On the import side, improving economic activity and a revival in industrial production increased demand for raw materials and capital goods.

However, robust growth in workers' remittances, which rose by 8.2 percent during July–March FY2026, combined with lower interest payments on external debt, helped narrow the Primary income deficit and supported the current account, Survey said.

As a result, Pakistan recorded a current account surplus of US$72 million during the period. The situation changed following the onset of the Middle East conflict. Exports faced setbacks due to the suspension of shipments to key markets and the closure of an important land transit route serving regional trade. At the same time, rising international crude oil prices and higher freight costs increased the country's import bill.

These developments pushed the current account into a deficit of US$324 million in April 2026. Nevertheless, economic authorities described the deficit as manageable and within sustainable limits.

Meanwhile, higher official inflows and additional bilateral support from partner countries contributed to a further increase in foreign exchange reserves. The improvement in external buffers helped maintain stability in Pakistan's exchange rate market and strengthened confidence in the country's economic outlook.

According to the Survey global trade environment becomes more challenging and the global economic landscape became increasingly uncertain during FY2026 due to rising trade restrictions, policy uncertainty, financial market volatility, and the escalation of conflict in the Middle East.

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According to the International Monetary Fund's April 2026 World Economic Outlook, global growth is projected to slow to 3.1 percent in 2026 before slightly improving to 3.2 percent in 2027, assuming the regional conflict remains contained.

Although inflation has eased from previous highs, risks remain elevated due to volatile energy prices, climate-related disruptions, trade fragmentation, and weak productivity growth. Global trade prospects have also weakened as tariff-related uncertainty and geopolitical tensions continue to weigh on goods trade.

However, services trade is expected to remain comparatively resilient, driven by digitalization, technology-related services, and growing demand for cross-border knowledge-based activities.

According to the economic Survey, the growth among Pakistan's major trading partners, including China, the United States, the United Kingdom, and the European Union, is projected to remain moderate, potentially limiting demand for Pakistan's goods exports.

Nevertheless, continued expansion in IT and digitally delivered services presents opportunities to partially offset these challenges.

According to the economic Survey rising energy prices pose new risks, after easing from the sharp increases triggered by the Russia-Ukraine conflict, global energy and commodity prices have once again come under pressure due to the Middle East crisis.

The resulting surge in oil prices has increased risks for commodity-importing emerging economies through higher import bills, inflationary pressures, and tighter external financing conditions.

For Pakistan, these developments highlight the importance of maintaining adequate foreign exchange reserves, ensuring exchange rate stability, pursuing prudent macroeconomic policies, and enhancing export competitiveness.

Analysts also note that Pakistan's constructive diplomatic engagement in support of de-escalating tensions between the United States and Iran has enhanced the country's international standing. This improved profile could help strengthen investor confidence and support higher foreign direct investment and portfolio inflows over the medium term.

Despite a challenging global environment, Pakistan's external sector has demonstrated resilience, supported by strong remittance inflows, a growing services export base, and improved external buffers. According to official documents,the Policymakers remain focused on preserving macroeconomic stability while navigating evolving regional and global risks.