Pakistan’s Balance Of Payments Crisis: Causes, Challenges, And Path To Stability |
Pakistan’s struggle with its balance of payments has been one of the most persistent economic challenges. It has shaped economic policy, affected political stability, and directly influenced the daily lives of ordinary citizens through inflation, unemployment, and repeated currency crises. The balance of payments records how much foreign exchange a country earns and how much it spends.
When spending exceeds earnings for a long period, pressure builds on foreign exchange reserves, the currency weakens, and the economy becomes vulnerable to external shocks. Pakistan’s history shows that this problem is not temporary or accidental but rooted in the structure of the economy. The key issue today is whether structural reforms can finally deliver a lasting solution rather than short-term relief.
For decades, Pakistan has faced recurring current account deficits. These deficits arise mainly because the country imports far more than it exports. Fundamental imports such as oil, gas, machinery, chemicals, and food items require large amounts of foreign exchange, while export earnings remain limited and concentrated in a few sectors. When exports fail to grow at the same pace as imports, the gap widens, and the balance of payments comes under strain. This has repeatedly forced Pakistan to borrow from abroad or seek emergency support to meet its external obligations.
Recent years provide a clear illustration of this pattern. In fiscal year 2022, Pakistan recorded a very large current account deficit, amounting to several billion US dollars and close to 5 per cent of the size of the economy. This deficit was driven by high global commodity prices, strong domestic demand for imports, and weak export performance. As foreign exchange reserves fell sharply, the country faced the risk of default on its external debt, leading to severe pressure on the currency and a sharp rise in inflation.
Since then, there has been some improvement in headline figures. In parts of 2024 and 2025, Pakistan recorded a current account surplus for the first time in many years. By the end of fiscal year 2024-25, the surplus was close to $2 billion. This turnaround was widely welcomed and seen as a sign that stabilisation measures were beginning to work. However, this improvement must be viewed with caution. Much of the surplus was achieved not because exports surged dramatically, but because imports were compressed through high interest rates, rupee depreciation, and restrictions on spending. At the same time, remittances from Pakistanis working abroad reached record levels, providing support to the external account.