Pakistan's external accounts look calm on the surface, but the foundations are shifting. The current-account deficit was a modest $328m in July 2026, an improvement on both the previous month and a year earlier. Yet merchandise imports have breached $6bn a month, persistently high oil prices are inflating the energy bill, and the economy now leans on remittances to plug a widening trade gap. More than half of those inflows come from the Gulf, where turmoil linked to the war between Iran and America raises the spectre of an economic slowdown. Meanwhile, the real effective exchange rate (REER) has climbed to its highest level since May 2018, prompting warnings that the rupee is overvalued.
The arithmetic is unforgiving. Goods exports stood at roughly half the level of imports in July, leaving a merchandise deficit of $3.1bn on the State Bank of Pakistan's (SBP) numbers, 17% wider than a year earlier. Adding services, the combined shortfall reached about $3.3bn-3.4bn, depending on the analysis, and the primary-income balance swelled the total further. Workers' remittances of $3.63bn were enough to cover most of the hole, which is why the current account stayed manageable.
Those inflows remain remarkably resilient. According to the central bank, remittances rose by 13% year-on-year and 4.5% from June. Saudi Arabia supplied $913.9m, the United Arab Emirates $737.3m, Britain $555.5m and America $317.2m. Remittances reached a record of more than $41bn in the 2025-26 fiscal year, and the SBP projects $44bn for the current one. One editorial, however, cautions that growth is likely to be checked this year as the Gulf turmoil unfolds.
Commentators disagree on the services ledger. One assessment holds that it keeps improving thanks to information technology and other business services, with tech exports up 18% to $417m in July. It attributes part of that strength to tax advantages that offer workers a gain of more than 30% for serving foreign clients rather than domestic formal employers. Another analysis puts the July services deficit at $228m and describes the balance as having deteriorated somewhat, though not alarmingly.
A statistical puzzle adds to the unease. For a second consecutive month, import figures from the SBP and the Pakistan Bureau of Statistics (PBS) have diverged sharply. The central bank recorded July goods imports of $6.15bn, against $6.89bn reported by the PBS, a gap of more than 13%; June showed a similar discrepancy. Historically such differences converge, raising the possibility that the SBP numbers will catch up in coming months, putting the current account under heavier strain.
The PBS data suggest robust demand for foreign goods. July imports rose by 18% year-on-year while exports increased by 9.5% to $2.94bn, producing a merchandise deficit of $3.95bn, more than a quarter wider than a year before. Payments for mineral fuels and oils came to roughly $1.2bn, below a revised $1.66bn in June, while machinery and electrical-equipment purchases stayed sizeable. Should monthly imports settle near $6.5bn while exports stay muted, the burden on remittances would only grow.
The exchange rate is drawing particular criticism. The REER stood at 107.92 in July, against 100.0 a year earlier, implying an equilibrium value of close to Rs300 to the dollar, according to one editorial. With inflation expected to climb, possibly staying in double digits over the next two months, the measure is likely to appreciate further in August and September. Pakistan has repeatedly suffered steep, disorderly devaluations when the currency was held too strong for too long.
Critics argue that the SBP has relied on a single instrument, keeping real interest rates positive by 2-3 percentage points or more to dampen demand. That approach raises debt-servicing pressure on the budget. A gradual depreciation, they contend, would curb imports, help exporters and allow real rates to become less punishing. The central bank could counter by pointing to its aggressive dollar purchases in the interbank market and a rebuilding of reserves.
Jameel Ahmad, the SBP governor, struck a more confident note at an Independence Day ceremony in Karachi. Average inflation was 7.1% in 2025-26, he said, and the current monetary stance is appropriate for keeping prices within the 5-7% medium-term target. Growth reached 3.7% last year and is projected at 3.5-4.5% this year. Reserves stood at $18.4bn at the end of June and are expected to exceed $21bn during the current fiscal year.
The governor also highlighted financial reforms. The PRISM+ system has modernised large-value payments, while retail digital transactions rose from around 10bn to 12bn over the past year. A new InvestPak platform aims to offer the public secure investment options, alongside efforts in Islamic banking, green finance, cyber-security and fintech. He acknowledged that challenges persist and called for continued reform, institutional strengthening and economic discipline.
The fiscal picture, at least, offers reassurance, with debt-servicing costs falling significantly. But financing a structurally wider goods-and-services gap with money sent home by workers is hardly a durable strategy, particularly when the largest sources sit in a region at war. Momentum that was building before the conflict has already slowed. The question is whether policymakers adjust gradually now or wait until events force a sharper correction.