Record-high remittances and stable exports have significantly strengthened Pakistan’s external account, with Saudi Arabia contributing the largest share, as reported by WealthPK.
In the first quarter of Fiscal Year 2024-25 (Q1FY2025), remittances reached an unprecedented $8.8 billion, reflecting a 39% increase compared to the previous quarter, according to the finance ministry’s October 2024 outlook. The largest portion of these inflows came from Saudi Arabia, making up 24.5% and boosting foreign exchange reserves to $16 billion, of which $11 billion was held by the central bank as of October 18.
Projections for October indicate expected export figures ranging from $2.5 to $2.8 billion, while imports are estimated between $4.5 and $4.9 billion, with remittances forecasted at $2.8 to $3.3 billion. This positive trend in stabilizing the external sector is largely attributed to the increased use of formal remittance channels, driven by the narrowing gap between the open market and interbank exchange rates.
In the past, Pakistan lost approximately $3.3 billion annually to informal remittance channels such as Hawala due to exchange rate differences. Recent changes in the exchange rate have shifted these flows into the formal system, which now provides more competitive rates. The central bank has further incentivized this shift by introducing fixed and variable rewards to banks and exchange companies to promote legal remittance channels.
Banks are set to receive SAR20 for each remittance exceeding USD100, with additional bonuses for surpassing the previous year’s figures. Exchange companies will earn PKR2 for every US dollar they remit, along with further incentives for achieving specific growth targets.
These policies have positively impacted foreign exchange reserves, providing stability to Pakistan’s external accounts and easing financial pressures. Nevertheless, the finance ministry’s report highlights that while remittance inflows are vital for short-term support, long-term sustainability will require comprehensive economic reforms to reduce reliance on remittances.
The report suggests that if export trends remain consistent and imports are kept in check, a stable current account balance is attainable. The growth in remittance inflows continues to play a crucial role in supporting Pakistan’s economy, acting as a vital financial cushion amid global and domestic challenges.
