Home remittances are supposedly the pinnacle of Pakistan’s external accounts. They grew by 27 percent to reach $38.3 billion in FY25—higher than the combined value of goods and services exports.
Multiple factors contributed to this sharp increase, including a rise in inflows through formal channels and growing freelance income, which largely falls under the category of remittances.
Money sent from Saudi Arabia was the highest, reaching $9.4 billion—almost one-fourth of the total. Between 2011 and 2024, a gross total of 4.4 million workers migrated to Saudi Arabia, followed by 2.8 million to the UAE in search of better employment and economic opportunities. In 2024 alone, 727,000 workers went abroad, of which only 30,000 were highly skilled while 366,000 were unskilled. This worker mix has remained consistent since 2011.
Migration peaked in 2015 when 947,000 workers went abroad for work. The COVID-19 years marked a sharp decline, with outbound workers dropping below 300,000 annually in 2020 and 2021. In the following two years, the number again crossed 800,000, followed by a slight dip in 2024.
The data suggests that the sharp rise in remittance inflows in FY25 is not directly tied to an abnormal increase in the number of workers going abroad. For instance, inflows in FY21 and FY22 were higher than in FY23, despite more workers going abroad in 2023 and 2024. In FY23, overall business sentiment was low, and many wealthy individuals sent money abroad through informal hundi/hawala channels, which used to be netted through inward remittances.
Later, due to crackdowns on smuggling and money laundering—combined with macroeconomic stability—this trend reversed, resulting in increased flows through formal channels. Another key development has been the growing number of domestic workers earning income from sources outside Pakistan, with much of this income also registered as home remittances.
The trend suggests that growth in remittances peaked in FY25, and even achieving a 10 percent increase to $42 billion in FY26 would be a significant accomplishment. Some interesting insights emerge when analysing the data by destination.
During 2011–14, the number of workers going abroad surged in both the UAE (from 156,000 in 2011 to 350,000 in 2014) and Saudi Arabia (from 227,000 to 523,000). Subsequently, migration to both countries declined, due to low oil prices, which averaged $50/bbl during 2015–17. As oil prices recovered from 2018 onward—barring the COVID years—outbound migration picked up again, reaching 427,000 to Saudi Arabia in 2023 and 230,000 to the UAE.
Interestingly, the trend continued in 2024 for Saudi Arabia, with 452,000 workers going there, while the UAE saw a sharp drop to only 65,000—the lowest since 2011, excluding the COVID period. This aligns with declining visa issuance for Pakistani workers and visitors to the UAE. Meanwhile, Oman has emerged as a rising destination, with 82,000 workers migrating there in 2024—surpassing the number going to the UAE.
Another intriguing yet counterintuitive development is that remittances from the UAE recorded the highest country-wise increase—rising by 41 percent to $5.5 billion in FY24—despite the sharp decline in the number of workers going there. This indicates that the growth in remittances from the UAE may not be driven by traditional workers.
It is likely that firms and professionals working in Pakistan but registered in the UAE are remitting funds back, which are recorded as home remittances. Additionally, the reversal of money laundering—much of which is historically whitewashed in the UAE—has increased incentives to use formal channels for remittance transfers.
If Pakistan wishes to maintain its reliance on home remittances, it should hope for oil prices to stay above $50/bbl and work on improving diplomatic relations with the UAE to secure more work visas. However, many economists caution against over-reliance on remittances.
Ahmad Jamal Pirzada of the Economic Advisory Group (EAG) calls remittances a "lifeline with Dutch Disease." His analysis shows that districts with high remittance inflows tend to have a larger share of their labour force in construction and a smaller share in industry, compared to districts with lower remittance flows. This suggests that higher remittances shift resources toward non-tradable sectors.
A greater concentration of economic activity in low-productivity sectors fuels consumption-driven imports, partially offsetting the benefits of higher remittances. The government and the State Bank of Pakistan must be mindful of the risks of excessive dependence on remittances, as such growth may hinder the economy from overcoming recurrent balance of payments crises.
The bottom line is that while the growth in remittances in FY25 is encouraging, these inflows cannot substitute for the role of exports, which generate domestic employment and put the economy on a more sustainable growth path.
Copyright Business Recorder, 2025