Moaaz Manzoor
Remittances rose to $3.1 billion in December, boosting Pakistan’s economy, but experts urge reducing reliance through reforms, report WealthPK.
The surge marked a 29.3% year-on-year increase and a 5.6% rise compared to the previous month, according to the State Bank of Pakistan (SBP). Cumulative inflows for H1FY25 reached $17.8 billion, a 32.8% jump from $13.4 billion during the same period last year. This remarkable growth is attributed to the economic recovery supported by IMF loans, exchange rate stabilization, and SBP reforms incentivizing formal remittance channels.
Saudi Arabia ($770.6 million), the UAE ($631.5 million), the UK ($456.9 million), and the US ($284.3 million) remained the top contributors, while the other Gulf Cooperation Council (GCC) countries also played a significant role. Remittances bolster foreign exchange reserves and support the balance of payments, with FY25 projections aiming at a record $35 billion.
Talking to WealthPK, Dr. Junaid Ahmed, Senior Research Economist at the Pakistan Institute of Development Economics (PIDE), noted that narrowing the exchange rate gap between the open market and interbank channels had encouraged the migrants to use the formal systems, addressing the previous losses to informal networks like hawala.
He highlighted the critical role of temporary Middle Eastern migrants, particularly in countries like Saudi Arabia and Qatar, where remittance flows remain strong due to government incentives for banks and exchange companies. However, Dr. Ahmed cautioned that overreliance on remittances poses long-term challenges. He stressed the need for structural reforms to address domestic issues such as limited economic opportunities and inflation, which drive emigration and human capital loss.
Ali Najib, head of equity sales at Insight Securities, attributed the improved current account surplus to robust remittance flows, export performance, stable commodity prices, and reduced non-essential imports due to the diminished purchasing power. However, he pointed out the widening trade deficit, with imports surpassing $5 billion in December, as a critical concern.
Najib emphasized the importance of export diversification, sustained remittance inflows, and effective import management to ensure economic stability. He warned that the rising global energy prices or declining remittances could derail progress, underscoring the urgency of addressing structural vulnerabilities for long-term resilience. Remittances remain a vital pillar of Pakistan’s economy, supporting foreign reserves and the external account.
However, dependence on this income highlights economic vulnerabilities. Sustainable growth requires reducing reliance on remittances through robust structural reforms, creating domestic economic opportunities, strategically diversifying exports, and managing imports for long-term stability.
Credit: INP-WealthPk