Pakistan's external position, briefly buoyed by a rare current-account surplus, is now under mounting strain as rising import costs and a widening trade gap threaten to undo recent stability.

In February 2026, the country posted a surplus of $427m-its strongest showing in nearly a year-marking a second consecutive monthly improvement. This helped contain the cumulative deficit for the fiscal year to about $700m, a notable shift from earlier trends.

The improvement was driven largely by strong remittance inflows and a temporary easing in services imports. Lower debt-servicing obligations also reduced the primary income deficit, contributing to a more favourable monthly balance.

Yet the underlying picture remains fragile. Trade dynamics continue to deteriorate, with goods exports falling by 5% to $20.7bn during the first eight months of the fiscal year, while imports rose by 9% to $41.8bn. This pushed the merchandise trade deficit up by 28% to $21.1bn.

Although services trade offered some relief-imports declined while exports, particularly in IT and business services, remained resilient-the overall trade gap still widened by 25% to $23.2bn. Structural imbalances remain firmly in place.

The February surplus itself reflected a contraction in imports rather than a strengthening of export competitiveness. Both exports and imports declined during the month, suggesting that the improvement was driven more by adjustment than expansion.

External risks are intensifying. The disruption of energy supplies in global markets has raised costs for imported fuel and related products, increasing pressure on the import bill. Freight and insurance costs have also surged, compounding the burden on trade.

At the same time, remittance inflows-though currently robust-face medium-term uncertainty. With more than half originating from Gulf economies, any slowdown in that region could weaken this crucial source of external support.

Financial inflows offer little comfort. Foreign direct investment has declined sharply, while portfolio investment has turned more negative, signalling reduced investor confidence despite high domestic interest rates.

Policy responses may become more restrictive. Authorities are considering curbs on imports, particularly in fast-growing categories such as automobiles and machinery, to manage foreign exchange pressures.

The outlook is increasingly uncertain. Interest rates have already edged higher, and the currency could face further strain if external pressures persist.

For now, the recent surplus provides only temporary relief. Pakistan's external balance remains exposed, with persistent trade deficits and reliance on volatile inflows leaving it vulnerable to shifting global conditions.