Pakistan’s current account deficit reached $1.174 billion during the first half of FY26, marking a sharp reversal from a surplus of $957 million recorded in the same period of last year, as rising imports, weaker capital inflows and persistent structural challenges weighed on the external account.

Every month, the country recorded a current account deficit of $244 million in December 2025, compared to a surplus of $454 million in December 2024 and a surplus of $98 million in November 2025, indicating renewed stress on the balance of payments despite relatively stable remittance inflows.

Analysts noted that the widening deficit reflects a combination of seasonal import pressures, subdued export growth in non-services sectors, and limited improvement in foreign investment flows. While services exports, particularly in IT and IT-enabled segments, continued to provide some cushion, they were insufficient to offset the overall deterioration in the trade and income accounts.

The pressure on the external account was further compounded by weak performance on the financial account, where foreign direct investment (FDI) flows remained subdued. According to market estimates, net FDI inflows during 1HFY26 declined by 43% year-on-year to $808 million, compared to $1.425 billion in the same period of last year, underscoring persistent investor caution towards Pakistan.

December proved particularly challenging, as net FDI recorded an outflow of $135 million, reversing a net inflow of $180 million in November, according to Arif Habib Limited (AHL).

Analysts attributed this mainly to a large one-off divestment in the telecom sector following Telenor’s exit from Pakistan, which resulted in a sizeable outflow. However, they cautioned that beyond this transaction, the broader investment climate remains weak due to structural and policy-related concerns.

“The largest net FDI outflow in this month was from Norway of $376 million in the IT sector, led by Telenor’s exit from Pakistan following the sale of its assets to PTCL, in our view. We expect FY26 FDI to clock in at $2.5 billion,” noted Topline Securities.

Country-wise, China, Hong Kong and the UAE accounted for nearly 86% of the total net FDI inflows during the first half of the current fiscal year, highlighting a narrow concentration of foreign investment sources. Market participants view this concentration as a vulnerability, particularly in an environment of heightened global uncertainty and tightening financial conditions.

Commenting on the deteriorating trend, economist Muzammil Aslam said the investment situation remains discouraging despite Pakistan’s engagement with the IMF. “Foreign investment is down 43% in the first six months of the current fiscal year. Companies have either exited or are planning to leave due to heavy taxation, non-competitive utility prices, and policy uncertainty,” he said.

Aslam added that the persistence of weak inflows raises questions about the credibility of the government’s stability narrative. “Being in an IMF programme has not translated into investor comfort. The core issue is political stability, without which economic adjustments alone will not restore confidence,” he remarked.

Meanwhile, movements in the Real Effective Exchange Rate (REER) suggest a marginal easing in currency overvaluation. The REER clocked in at 103.73 in December 2025, down from 104.76 in November, reflecting a 0.98% month-on-month decline. However, on a cumulative basis, the REER remains up 5.81% in FY26 to date, while posting a marginal increase of 0.06% in calendar year 2025, indicating that the rupee is still relatively overvalued against a basket of trading-partner currencies.

Meanwhile, the Pakistani rupee registered a slight appreciation against the US dollar in the inter-bank market on Monday, gaining 0.01%. By the close of trading, the local currency settled at 279.92, strengthening by Rs0.03 against the greenback, as reported by the State Bank.

The rupee had also posted a modest gain over the previous week, appreciating by Rs0.07, or 0.03%, in the inter-bank market. It ended the week at 279.95, compared to 280.02 at the close of the preceding week.

Furthermore, bullion prices registered a sharp increase in the local market, as 24-karat gold per tola surged by Rs7,500 to settle at Rs489,362 – an all-time high. The price of 10 grams of 24-karat gold increased by Rs6,431 to Rs419,549, according to the All Pakistan Sarafa Gems and Jewellers Association. Likewise, the price of 10 grams of 22-karat gold went up by Rs5,895 to Rs384,600.

Silver prices also registered a growth, with 24-karat silver per tola increasing by Rs300 to Rs9,782 and the price of 10 grams of silver rising by Rs257 to Rs8,386.

In the international market, gold prices increased by $75 to $4,670 per ounce, while silver prices rose by $3 to $93.07 per ounce, the association reported.