EDITORIAL: Inward home remittances have become the backbone of our foreign exchange earnings. Two decades ago, remittances were merely 30 percent of goods and services exports.
Last year, this figure surged to 98 percent, and this year, remittances are likely to surpass goods and services exports entirely. In March 2025, home remittances crossed the $4 billion mark for the first time, and they are expected to exceed the combined value of goods and services exports.
The government and markets are celebrating the buoyant home remittance inflow. Meanwhile, representatives of overseas Pakistanis are being warmly welcomed by the government and establishment. This has helped to soothe sentiments and counter the narrative advocating for withholding remittances, often championed by fervent PTI supporters.
However, money has no emotions. It simply seeks security and profitability. Regarding remittances, most overseas Pakistanis send money home to cover household expenses. They will continue doing so, regardless of political leadership, as long as their families reside in Pakistan and they plan to return home, which is the case for most Pakistani workers in the Middle East.
The credit goes to the government, SBP, and banks for their instrumental role in channeling higher sums through formal banking systems. Their efforts have significantly reduced the share of the informal sector, which had increased due to the rising demand for hundi/hawala systems.
Recent crackdowns on smuggling, money laundering, stricter controls on the Afghan border, reduced supplies of Iranian diesel, and overall macroeconomic stability have redirected inflows towards formal channels.
Additionally, banks, eager to fulfill dollar obligations such as retiring L/Cs and other payments in a restricted environment, have been offering discounts (incurring losses) to attract remittances. These factors collectively contribute to the growth of formal remittances.
Other contributors include an increase in the number of Pakistanis going abroad, rising freelance income, and seasonal inflows during Eid and Ramazan, which have also significantly increased remittance figures.
While the consistent inflows are encouraging and likely to remain stable, they predominantly fuel consumption and meet growing import needs. However, remittances alone cannot enhance economic productivity or replace exports, which generate jobs and foreign exchange while enabling economic progression.
To ensure productive usage, overseas investment is essential. This was emphasized at the recent conference, highlighting the potential for economic growth. Investment requires stability and returns; yet, in Pakistan, high risk and uncertain returns make attracting investment challenging.
Political and economic stability combined with continuity of policies and ease of doing business is crucial to encouraging overseas Pakistanis to bring in their investments and expertise, which could then transform into valuable assets to drive economic growth. Otherwise, remittances will continue to fund consumption - leading to the classic symptoms of the Dutch disease.
Copyright Business Recorder, 2025
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