Pakistan’s pivot from exports to remittances

In the past three fiscal years (2023 to 2025), Pakistan received 95.8 billion dollars in remittances compared to 91 billion dollars in merchandise exports. This outcome is hardly surprising, as it reflects a deliberate policy orientation that has institutionalized remittances as the default instrument for stabilising the current account.

Many independent economists and policy analysts in Pakistan have recently cautioned against the long-term implications of this trend, viewing it as a precursor to Dutch disease (Pirzada, 2025) and a symptom of deeper structural weaknesses (Nazim Jui et al., 2024). Yet policy narratives continue to portray remittance inflows as an indispensable and seemingly sustainable anchor of the external account.

In theory, that is not how it should be. Of the three components of the current account, that is, trade in goods and services, primary income, and secondary income, the trade balance remains pre-eminent. The secondary income component, which records remittances and grants, is designed to play a supportive role by providing short-term stability, but it cannot ensure structural balance or long-term competitiveness.

Pakistan’s current account, however, reflects an inversion of priorities, leading towards an illusion of stability as well as diverting national resources and policy attention towards sources that are both theoretically and practically volatile.

Last year, Pakistan posted a current account surplus for the first time in fourteen years and the highest in twenty-two, yet it was driven not by exports but by record-high remittance inflows. And there is now a grave concern over county’s growing expectations from a single, unpredictable source of inflow, one that depends heavily on global labour market trends and a stable exchange rate regime.

With the export-to-GDP ratio remaining nearly stagnant over the past two decades, remittances have become the only component of the current account that Pakistan has managed to attract, and that too at the expense of its human capital. This shift has deepened over time, with remittance inflows in recent years now dominating the current account and even surpassing inflows from merchandise exports.

A closer look reveals that the share of remittances in the current account has risen from 21 percent to 46.3 percent over the past two decades, while the share of merchandise exports has declined sharply from 53.3 percent to 39 percent (Figure 1).

This transition did not happen overnight. Since 2008, Pakistan’s balance sheet has witnessed a steady acceleration in remittances alongside periods of stagnation and intermittent declines in export inflows, with only a few exceptional years of growth. For context, the compound annual growth rate for exports during 2008–24 was 2.7 percent, compared with 10.9 percent for remittances, nearly four times higher.

At this stage, it is important to note that when both remittances and exports ‘grow simultaneously’, they provide a synergistic boost to the current account. However, policymakers must not become complacent due to an acceleration in remittances alone, as this component does not stem from domestic productivity and remains highly dependent on external factors.

The surge in remittances has also been partly driven by deliberate government policy.

In 2009, the Pakistan Remittance Initiative (PRI) was launched to document and channel remittance transfers, shifting inflows from informal hawala networks to formal banking channels. An annual subsidy was introduced under the scheme, which also reimbursed telegraphic transfer charges, rewarded banks for attracting higher inflows, and offered incentives to exchange companies. The policy turned remittances into a profitable business for banks and a convenient source of foreign exchange for the government.

Under IMF conditions, the subsidy was withdrawn in the 2026 Budget, discouraging banks from mobilizing remittances and resulting in a slowdown in inflows during the early months of the current fiscal year. Responding to the central bank’s concerns, the government has released PKR 30 billion from the contingency fund to revive remittances, with additional allocations planned. The reinstatement of this support underscores Pakistan’s deep dependence on remittances and its apprehension over a potential current account crisis in their absence.

While digitizing and formalizing remittance channels was a sound measure to curb informal dollar inflows, the government went a step further by promoting overseas employment through training programmes for migration-bound workers, streamlining migration procedures, and signing bilateral labour agreements with Saudi Arabia, the UAE and Qatar. Yet, a large youth cohort, accounting for about 10 percent of the population aged 15 to 24 (World Bank, 2024; modeled ILO estimate), continues to face unemployment at home.

In essence, Pakistan has decisively made remittances the cornerstone of its current account. The PRI and similar schemes have evolved into substitutes for structural reform, enabling the government to sustain foreign exchange inflows without addressing fundamental economic weaknesses such as low productivity, high unemployment, and a declining manufacturing base.

The implications of this trend become even clearer through a cross-country lens. Among major remittance-receiving economies, Pakistan stands out with the highest remittance-to-GDP ratio at 9.4 percent and the lowest export-to-GDP ratio at 10.4 percent (see Figure 2).

Taguchi and Batool (2024) note that when the remittance-to-GDP ratio exceeds 6 percent in Pakistan, it begins to exacerbate deindustrialization, slow capital accumulation, and exhibit symptoms of Dutch disease.

In contrast, other major remittance-recipients have built their growth on strong manufacturing bases and export strategies. None, however, is known for achieving sustainable growth primarily through remittances.

For instance, China’s remittance-to-GDP ratio peaked in 1997 at only 0.47 percent, while its exports-to-GDP ratio reached as high as 35.5 percent in 2006. Similarly, India’s remittance-to-GDP ratio peaked at 4.17 percent in 2008, with its exports-to-GDP ratio climbing to 25.13 percent in 2013 over a span of nearly five decades. By comparison, Pakistan’s export-to-GDP ratio has gradually tapered off since its last peak of 17.7 percent in 1992.

In theory, both exports and remittances strengthen the current account, but the nature of these inflows is fundamentally different, as are their economic implications for a country’s stability.

The first-quarter FY2026 data highlight renewed pressure on the external account, with exports falling 3.8 percent year on year and imports surging 13.8 percent (PBS), resulting in a quarterly current account deficit of over half a billion dollars (SBP) despite growth in remittances.

The IMF projects exports of USD 32.9 billion and imports of USD 60 billion for FY2026. However, a potential slowdown in export inflows amid global market volatility, coupled with first-quarter imports already exceeding the benchmark, signals an early warning of a current account crisis.

At the same time, increasingly stringent global migration policies, marked by tighter border controls and repatriation measures, pose a growing constraint on Pakistan’s ability to sustain its current account through remittances in the long run.

The government, therefore, faces two options: either continue facilitating remittance inflows to keep the balance of payments afloat in the short run or take proactive, strategic, and productivity-based measures to reform exports.

Ultimately, long-term foreign exchange stability cannot be secured through transfers alone; it must be anchored in trade, innovation, and productivity.

Copyright Business Recorder, 2025