Remittances to the rescue

The significance of worker remittances can be seen from the fact that over $8 billion came into the country in the first quarter of FY25 – comparable to $7 billion, 37-month EFF by the IMF. Remittances play a crucial role in supporting Pakistan’s economy, particularly by boosting foreign exchange reserves. The recent surge in inflows has been especially vital as the country experiences a stabilization in repatriation outflows.

By the close of 3QFY25, remittances reached $8.8 billion, marking a 39 percent year-on-year increase. In September 2024 alone, the country received $2.85 billion in remittances, up 29 percent year-on-year. However, on a month-on-month basis, the September 2024 remittances were slightly down by 3 percent. This year-on-year growth can be attributed to overseas Pakistani workers sending funds back home, especially from key markets like Saudi Arabia, the UAE, the UK, and the USA. Additionally, a strengthening Pakistani rupee, a narrowing gap between open market and interbank rates, and a rise in the number of workers migrating abroad have further contributed to remittance growth. The government and the State Bank of Pakistan (SBP) have also implemented policies to encourage the use of formal channels for sending remittances.

Saudi Arabia and the UAE remain the largest contributors to remittances, with year-on-year growth of 42 percent and 67 percent respectively in 1QFY25. Other key markets include the UK, USA, and EU countries, all showing positive, though smaller, growth rates.

In terms of remittance importance and volume, countries like India, Mexico, the Philippines, Bangladesh, Egypt, and Vietnam display similar trends. They heavily rely on remittances from Middle Eastern countries such as Saudi Arabia and the UAE, and from Western economies like the USA and the UK. In terms of GDP percentage, remittance shares in these countries range between 5 percent and 9 percent, with Pakistan being more dependent on them than larger economies like India.

To ensure that these critical inflows remain strong, the focus should be on strengthening formal remittance channels and maintaining a competitive exchange rate. In the long term, maintaining stable economic policies and providing enhanced incentives for formal remittance channels will be crucial to sustaining remittance inflows. Recently, the SBP announced a threefold increase in monetary incentives for exchange companies to encourage the mobilization of remittances.