Overseas Pakistanis are an invaluable asset to the nation, contributing significantly to its economy through their remittances. These remittances serve as a lifeline for Pakistan’s economy, helping to stabilize it and prevent potential financial crises. The continuous inflow of foreign remittances is crucial; without it, the country could face severe economic challenges, possibly even bankruptcy. Fortunately, remittances have shown a positive trend, increasing over time, which is a reassuring development for the nation’s economic health.
In the fiscal year 2023-24, Pakistan received a record $30 billion in remittances, marking a 10.5 percent increase from the $27 billion recorded in the previous fiscal year, 2022-23. This surge brings remittances close to Pakistan’s total exports, which stand at $30.6 billion. This increase not only underscores the importance of remittances but also highlights their growing role in the national economy.
The highest remittances in the financial year 2023-24 came from Saudi Arabia, amounting to $7.4 billion. The United Arab Emirates followed with $5.5 billion, while the United Kingdom contributed $4.5 billion. The United States sent $3.6 billion, the European Union provided $3.5 billion, and the GCC countries collectively contributed $3.2 billion. Additionally, $4.2 billion came from other countries around the world.
These figures demonstrate the significant reliance on remittances from Gulf countries, particularly Saudi Arabia and the UAE, which together account for more than half of the total remittances.
Globally, Pakistan ranks fifth in remittance receipts, with India leading at $87 billion annually, followed by China with $54 billion, Mexico with $53 billion, and the Philippines with $36 billion. Egypt and Bangladesh follow Pakistan with $30 billion and $23 billion, respectively. The higher remittances to countries like India and the Philippines are often attributed to their workers’ education, English language proficiency, and technical skills, which enable them to secure better-paying jobs abroad.
The increase in Pakistan’s remittances can be partly credited to the Financial Action Task Force (FATF). The FATF’s stringent measures have significantly reduced the use of informal money transfer systems. In the Gulf countries, where many Pakistani expatriates work, regulatory changes have mandated that salaries be paid through bank transfers, thereby facilitating easier and more secure remittances through official banking channels. However, despite these improvements, some Pakistanis still prefer the informal systems due to the quicker transfer times and slightly better exchange rates.
One of the main reasons overseas Pakistanis opt for informal channels is the inefficiency of the banking system, which often delays the transfer of funds. Unlike the banking system, which can take several days, informal systems can deliver money within hours.
To address this issue, the Pakistani government must work on further improving and modernizing the banking infrastructure, encouraging expatriates to use formal channels for remittances. This would ensure that Pakistan benefits fully from these valuable inflows.
Currently, approximately 13.53 million Pakistanis live in 50 countries worldwide, comprising both educated and uneducated workers. This number is steadily increasing, with over 860,000 Pakistanis going abroad in 2023 and 800,000 so far in 2024. This trend suggests that remittances are likely to continue growing in the coming years.
While countries like China, India, and Bangladesh are moving towards digitalization to streamline and increase their remittances, Pakistan still relies heavily on traditional banking systems. The Pakistani government should focus on providing digital means for overseas Pakistanis to remit money, ensuring transparency and ease of use. Additionally, there should be a concerted effort to provide vocational training to the workforce, equipping them with skills that are in demand globally, thereby enabling them to secure higher-paying jobs.
Such measures would not only increase the volume of remittances but also potentially allow Pakistan’s remittances to surpass its exports in the near future. By focusing on these areas, Pakistan can ensure a steady and growing stream of remittances, which are vital for the country’s economic stability and growth.
Moreover, remittances have broader socio-economic benefits. They help in alleviating poverty, improving household incomes, and enhancing living standards. Remittances are often used for essential needs such as healthcare, education, and housing, thereby contributing to human development. In many rural and underdeveloped areas of Pakistan, remittances are a critical source of income, helping to drive local economies and reduce regional disparities.
Additionally, remittances contribute to the foreign exchange reserves of Pakistan, providing much-needed liquidity to the economy. This influx of foreign currency helps stabilize the Pakistani Rupee, reducing the current account deficit, and enhancing the country’s creditworthiness on the global stage.
Remittances also provide a buffer against economic shocks, helping the country to manage external debt and mitigate the impact of adverse economic conditions.
The government has recognized the importance of remittances and has introduced several initiatives to encourage overseas Pakistanis to remit money through formal channels. These include offering incentives such as reduced transaction fees, preferential exchange rates, and convenient remittance services through mobile banking and digital platforms. Efforts are also being made to improve the efficiency and speed of the banking system, making it more user-friendly for expatriates.
Despite these positive trends, challenges remain. The global economic environment, geopolitical tensions, and labor market conditions in host countries can impact remittance flows. Therefore, it is crucial for Pakistan to diversify its sources of remittances and reduce dependence on a few countries. Strengthening economic ties with new markets and promoting the export of skilled labor to emerging economies can help achieve this diversification.
Furthermore, there is a need for comprehensive policies that address the long-term integration of remittances into the national development strategy. This includes promoting financial literacy among expatriates, encouraging savings and investments in productive sectors, and creating favorable conditions for diaspora entrepreneurship. By leveraging the potential of remittances, Pakistan can achieve sustainable economic growth and development.
Chiara Cacco: Researcher at the University of Siena, Italy.
Dr. Sahibzada Muhammad Usman: Postdoctoral Fellow, Global Engagement Academy, School of Culture and Communication, Shandong University (Weihai). Dr. Usman has participated in various national and international conferences and published 30 research articles in international journals.