Qudsia Bano

Pakistan has witnessed a significant surge in remittances, which reached $30.3 billion in the Fiscal Year 2024, marking an increase of 10.7% over the previous year, reports WealthPK. The rise in remittances highlights the growing dependence of the country's economy on its overseas workforce, prompting experts to voice concerns over this reliance. The State Bank of Pakistan (SBP) reported that the remittances in FY24 were notably higher than the $27.3 billion received in FY23. June alone saw a remarkable jump of 44.4% in inflows, with $3.2 billion received compared to $2.187 billion in June FY23. Substantial growth in remittances has already surpassed the earnings from exports, reflecting an increasing trend where the economy relies more on the funds sent by overseas Pakistanis. Financial experts view this growth as a double-edged sword.

"While the increase in remittances is undoubtedly a positive indicator of the confidence the expatriates have in the country's economic stability, it also points to a worrying dependency on these inflows," said Dr. Ahmed Faraz, an economist at the Pakistan Institute of Development Economics, while talking to WealthPK. "This dependence could become problematic if the global economic conditions change or if there are disruptions in the labor markets where Pakistani expatriates are employed." Inflows from key areas such as Saudi Arabia, the UAE, the United Kingdom, and the United States saw substantial growth. Saudi Arabia led with $7.424 billion, showing an increase of 13.6% in FY24, followed by the UAE with an 18.9% rise, totaling $5.534 billion.

Remittances from the UK and the US also grew by around 11%, reaching $4.521 billion and $3.531 billion, respectively. Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan, highlighted the role of exchange companies in supporting the foreign exchange market. "Our data shows that the exchange companies sold up to $4 billion in the interbank market during FY24, which has provided significant support to the foreign exchange market. This highly encouraging trend indicates robust inflows through formal channels." However, experts caution that the economy's increasing reliance on remittances could be detrimental in the long term.

"The fact that remittance inflows have outpaced export earnings should be a wake-up call for the policymakers," noted Dr. Nosheen, Senior Finance Manager at the Habib Bank Limited. "Diversifying the economic base and boosting domestic production and exports should be prioritized to ensure sustainable economic growth," she said. The government's ability to manage the current account deficit, which fell to $464 million during the first 11 months of FY24, is seen as a positive development. Additionally, the improved reserves of the State Bank of Pakistan, standing at $9.4 billion, reflect the positive impact of remittance inflows and ongoing discussions with the IMF.

Credit: INP-WealthPk