• Higher oil prices pose fresh challenge to external account
• FDI jumps 80pc to $316m

KARACHI: Pakistan’s current account deficit (CAD) narrowed sharply in August, indicating an improvement in the external balance, but the widening trade gap and surging oil prices amid the Gulf war continue to pose risks to the country’s external position.

The State Bank reported on Wednesday that the current account deficit in August was $98 million, against a deficit of $342m in the same month last fiscal year (FY26).

The August deficit was much lower than the $445m deficit recorded in July, the first month of FY27. If the trend persists, the country may see a current account surplus in September this year.

In the first two months, the current account deficit stood at $543m, compared to $853m in the same period of FY26.

However, the regional situation is not favourable for Pakistan as the Gulf war has posed a serious threat to many developing economies struggling to cope with high oil prices.

Oil prices have risen to over $100 per barrel and may increase further as the war has spread. Saudi Arabia, the biggest oil exporter in the Middle East, is facing serious difficulties in exporting oil as the Red Sea route has been closed by Yemen’s Houthis following the closure of the Strait of Hormuz.

The surge in oil prices has put Pakistan in a much more difficult situation, and the government is trying to control the worsening situation through possible smart lockdowns. When asked about the current developments, the private sector said the government had not consulted it before taking any decision and simply announced the policy.

Pakistan’s trade deficit for the first two months (July-August) of FY27 expanded by 18.1 per cent year-on-year to $7.12 billion, mainly because imports grew faster than exports.

State Bank data shows that exports of goods during the first two months of the current fiscal year were $5.445bn, compared to $5.238bn in the same period of the last fiscal year. Similarly, imports during the first two months were $11.635bn, compared to $10.449bn in the same period last year.

The balance on trade in services improved during the first two months, with the deficit falling to $562m from $753m in the same period last year.

The prime minister has recently asked the government machinery to remove all hurdles to exports, showing the seriousness of the situation. The drying up of economies in the Gulf countries has created fears for millions of Pakistanis living in those countries, as they send about 55pc of total remittances to Pakistan.

So far, Pakistan has received a higher amount of remittances during the first two months of this fiscal year, which has helped the country keep its balance of payments under control, with a stable exchange rate and reasonable foreign exchange reserves.

Foreign investment

Foreign direct investment (FDI) inflows surged 80.5 per cent to $315.9 million in August from $175m in the same month last year, the State Bank of Pakistan reported on Wednesday.

FDI remains small, but inflows increased despite rising uncertainty in the region and Pakistan’s exposure to the negative effects of the Gulf war.

SBP data showed FDI rose 24pc to $494.5 million in the first two months of 2026-27 from $398.6m a year ago.

China topped the list with $113m investment in August, followed by Canada with $50m and the UAE with $48m. China invested $176m in 2MFY27, up from $120.7m in the same period last year.

Published in Dawn, September 17th, 2026