(Maria Mansab)
Pakistan’s economy is showing signs of stabilization, driven by the implementation of reforms and the positive impact of the government’s initiatives. This progress is reflected in a substantial increase in remittances,which reached $3 billion in July 2024 a remarkable 48% growth compared to $2.2 billion in July 2023. This surge indicates growing confidence among the Pakistani diaspora in the country’s economic direction.
According to the State Bank of Pakistan, remittances from Saudi Arabia, which is the main source of remittances for Pakistan, rose to $761 million in July 2024. Remittances from Pakistani workers in the United Arab Emirates amounted to $611 million. In addition, Pakistan received $443 million in remittances from the United Kingdom. While the Pakistani diaspora residing in the United States remitted $300 million to their home country.
Notably, In July 2024, remittances were recorded from over 30 countries, with the Gulf region contributing the largest share. Out of the total $3 billion received, $1.37 billion originated specifically from Saudi Arabia and the UAE, representing the highest volume of remittances from these countries.Collectively, these contributions highlight the crucial role played by the Pakistani diaspora in the Gulf and Western 1mcountries in supporting Pakistan’s economy.
The World Bank Report Migration and Development Brief 40 states that remittance flow in Pakistan increased by around 7% and reached $28 billion in 2024. It is projected to further increase by 4% to approximately $30 billion in 2025. This projection aligns with the Finance Ministry’s Medium-Term Macroeconomic Framework Report, whichsupports this projection, stating that remittances are expected to increase to $30 billion by 2025.
Significantly, Pakistan ranked among the top five countries that received the most remittances in 2023, with a total of $27 billion.Remittances now account for 7.9% of the country’s GDP, making them a crucialeconomic stability and growth source.
The consistent inflow of remittances has been pivotal in narrowing Pakistan’s current account deficit. The deficit experienced a significant decline of 78%, dropping from $741 million in July 2023 to a mere $162 million in July 2024.
This improvement has been instrumental in strengthening the Pakistani rupee which experienced a modest increase of 10 paisas against the US dollar, closing at PKR 278.44 in the interbank foreign exchange market. This increase in value can be attributed to the positive impact of the increase in remittances anda reduction in the current account deficit.
Additionally, the SBP has reported a significant surge in the country’s foreign exchange reserves, providing further momentum to the rupee’s upward movement. In August 2024, the reserves saw a significant increase of $173 million, reaching a total of $14.65 billion.
The consistent $3 billion monthly remittances are attributed to various factors, including a stable exchange rate. This stability has been achieved through measures such as reducing the current account deficit, increasing foreign inflows, and tightening regulations on illegal dollar trade, foreign currency hoarding, and hawala/hundi operators. Additionally, the gap between open and interbank rates has also narrowed, contributing to the overall stability. This increase is primarily a result of the shift in worker remittances towards formal channels, driven by the narrowing rate difference between exchange companies and the interbank market.
In a strategic move to further streamline remittances,Pakistan has recently initiated the Buna-Raast connectivity project, aimed at facilitating the smooth flow of remittances from the Arab world to Pakistan. The project connects Pakistan’s digital payment system, Raast, with Buna, which was established under the Arab Monetary Fund. The initiative aims to improve transparency, especially in remittances, taxation, and the power sector, ultimately guiding Pakistan towards a sustainable path that aligns with FATF requirements.
It is imperative to mention here that Pakistan’s government sets the target for remittances from overseas Pakistanis at $30.2 billion for the current fiscal year. If this trend continues, the number of remittances will surpass the objective further strengthening Pakistan’s economic outlook.
Additionally, reports emphasized that a skilled worker abroad sends remittances equivalent to those of 10 unskilled laborers. This highlights the critical need for Pakistan to promote vocational training and take strategic measures to facilitate the employment of skilled individuals abroad. By enhancing the skill level of the workforce, Pakistan can further increase remittance inflows, which are vital to its economic stability.
The continual enhancement in foreign exchange reserves signifies a favorable pattern for the nation’s economy, strengthening the notion that the rupee may persist in achieving stability. Due to substantial inflows from remittances, it is anticipated that the recent appreciation of the rupee will remain stable, which will greatly benefit Pakistan’s economic prospects.
Remittances have proven to be a vital pillar of Pakistan’s economy, providing a buffer during economic crises and serving as a potential driver of sustainable growth. By aligning fiscal policies with macroeconomic indicators and investing in vocational training to increase the number of skilled workers abroad, Pakistan can maximize the positive impact of remittances on household welfare and long-term economic development. As the country continues on its path of economic reform and stability, the role of remittances will remain central to its progress.
