Greater reliance of external accounts on GCC states

EDITORIAL: Pakistan’s external account is deeply dependent on the Middle East. Exports, largely headed to Western markets, have stagnated in absolute terms and declined as a share of GDP, while imports have kept rising. The widening trade gap has been bridged mainly by home remittances, which have grown fourfold over the past 15 years.

More than half of Pakistan’s inward remittances last year came from GCC countries, with nearly one-fifth from the UAE alone. With the region now caught in conflict, the risk parameters are changing, and this could weigh on the remittance outlook.

Over the last decade, Pakistan’s economy has expanded partly on the back of rising remittances, which have financed growing import-led consumption — from energy and automobiles to food and other essentials.

There is progress on the productivity front. Productivity remains low, while exports continue to shrink as a share of the economy. Any dent in remittances, therefore, would directly affect the size of economy. If imports have to be curbed, economic growth and employment would become the immediate casualties.

If remittances fall and exports cannot grow quickly — which is unlikely in the short term — Pakistan would need foreign investment and debt inflows to finance the resulting current account gap. However, FDI has performed even worse than exports and is now close to negligible. Without fixing the economy’s structural weaknesses, both local and foreign investments are likely to remain weak.

Debt inflows present a similar problem. Since the CPEC, much of Pakistan’s friendly-country financing has also come from the GCC, creating the same concentration risk seen in remittances.

Pakistan is overly dependent on the GCC for both remittances and external debt support. The economy is already feeling the impact. Frictions between the UAE and Saudi Arabia have grown, and despite Pakistan’s efforts to remain neutral, the UAE appears to see Pakistan as being closer to the Saudi camp.

This is reflected in Pakistan returning USD 3.5 billion in deposits to the UAE, including older deposits dating back to the 1990s. Saudi Arabia has promptly filled the gap by providing an additional USD 3 billion, taking its deposits to USD 8 billion. But this only heightens the concentration risk, as Pakistan’s external financing eggs are now even more heavily placed in the Saudi basket.

There are also reports that UAE firms may revisit their investment portfolios, raising the risk of outflows from investments already made in Pakistan, including PTCL. At the same time, there are growing anecdotes of visas being cancelled for Pakistani workers in the UAE.

A slowdown in GCC economies could also affect remittance inflows. Some argue that Saudi Arabia and Qatar may absorb more Pakistani workers to compensate for those leaving the UAE. But that may not be easy, as these economies are also feeling the economic burden of the conflict.

Even if Pakistan sends more workers to Saudi Arabia, it will only deepen an already excessive dependence on one country. There is no easy way out of this whirlpool without addressing Pakistan’s structural economic weaknesses and diversifying away from overreliance on the GCC. That, however, is easier said than done.

Copyright Business Recorder, 2026