- Govt initiatives like PRI, RDA, and incentive schemes aim to enhance remittance inflow
- Saudi Arabia, UAE, the US, and the UK remain the largest sources of remittances
Remittances play a crucial role in Pakistan’s economy, serving as a major source of foreign exchange and financial stability. As millions of Pakistanis live and work abroad, they send money back home to support their families and contribute to national development. The inflow of remittances has consistently impacted the country’s economic landscape, influencing everything from foreign reserves to household incomes.
Government’s initiatives
To enhance remittance inflows, the Pakistani government has implemented several initiatives aimed at encouraging the use of formal channels and providing better services to overseas Pakistanis. Key initiatives include:
Pakistan Remittance Initiative (PRI):
Launched collaboratively by the State Bank of Pakistan, the Ministry of Overseas Pakistanis, and the Ministry of Finance, the PRI aims to facilitate and support faster, cheaper, and more efficient remittance flows through formal channels.
Roshan Digital Account (RDA):
Introduced in September 2020, the RDA allows non-resident Pakistanis to open and operate bank accounts in Pakistan remotely. This digital banking facility enables overseas Pakistanis to invest in various instruments, including government securities and the stock market, thereby encouraging the inflow of remittances through official channels.
Incentive schemes for formal channels:
In September 2023, the government launched a performance-based incentive scheme to promote the use of formal channels for remittances. This initiative aims to streamline the remittance process and enhance the convenience and security of transactions for overseas Pakistanis.
Collaboration with financial institutions:
The government and the State Bank of Pakistan have partnered with financial institutions to expand digital payment infrastructures. For instance, Visa’s collaboration with 1Link aims to increase the number of businesses accepting digital payments in Pakistan tenfold over the next three years, facilitating easier remittance transfers and promoting digital transactions.
Compliance with International Standards:
To discourage informal remittance channels, the government has enhanced compliance with international standards, such as those set by the Financial Action Task Force (FATF). These measures have contributed to a shift from informal to formal channels for remittance transfers.
These initiatives collectively aim to provide secure, efficient, and accessible avenues for overseas Pakistanis to remit funds, thereby bolstering the country’s foreign exchange reserves and supporting economic stability.
Economic impact
Boosting foreign reserves: Remittances provide a steady stream of foreign exchange, helping to stabilize Pakistan’s foreign reserves and reduce reliance on external borrowing.
Enhancing living standards: For millions of Pakistani households, remittances serve as a financial cushion, enabling better healthcare, education, and living conditions.
Supporting real estate, consumer sectors: A significant portion of remitted money is invested in real estate, businesses, and consumer goods, driving economic activity across various industries.
Strengthening the banking system: The increase in remittance inflows encourages the use of formal banking channels, contributing to financial inclusion and a more robust banking infrastructure.
Key sources of remittances
The largest sources of remittances for Pakistan include:
Saudi Arabia: A significant portion of Pakistan’s workforce is employed in Saudi Arabia, making it the top contributor to remittances.
United Arab Emirates (UAE): With a large Pakistani diaspora, the UAE ranks among the top sources of remittances.
United States and the United Kingdom: Pakistani expatriates in these countries contribute heavily to the remittance inflow.
Gulf States: Countries such as Qatar, Oman, and Kuwait also contribute a substantial share.
Contribution from Gulf countries
Focusing on the Gulf Cooperation Council (GCC) countries, the contributions are as follows:
In the first four months of the fiscal year 2024-2025 (July to October 2024), Pakistan received $11.8 billion in total remittances, marking a 35% increase compared to the same period in the previous fiscal year.
Saudi Arabia: $2.9 billion, accounting for approximately 25% of total remittances during this period.
United Arab Emirates (UAE): $2.3 billion, reflecting a 56% growth compared to the same period in the previous fiscal year.
Other Gulf countries: $1.7 billion during the first seven months of the fiscal year 2023-2024 (July 2023 to January 2024).
European Union
In recent years, remittances from European Union (EU) countries have significantly contributed to Pakistan’s economic growth. During the first ten months of the fiscal year 2021-22 (July 2021 to April 2022), remittances from EU countries reached over $2.8 billion, marking a 27.1% increase compared to the same period in the previous year.
The key EU countries contributing to this growth include:
- Italy: Pakistani expatriates in Italy sent $701 million in remittances during the first ten months of FY 2021-22, a substantial 47% increase from the previous year’s $295.5 million.
- Greece: Remittances from Greece amounted to $300 million in the same period, reflecting a 41% rise compared to $215 million in the previous fiscal year.
- Netherlands: Pakistani workers in the Netherlands contributed $50.2 million, a 30% increase from the prior year’s figures.
- Spain: Remittances from Spain totaled $42 million, showing a 30.1% growth compared to the previous year.
Notably, Italy has emerged as Pakistan’s largest source of workers’ remittances from the EU and the second largest in Europe after the United Kingdom.
This surge is attributed to the growing Pakistani diaspora in Italy and enhanced bilateral economic relations.
These increasing remittance inflows from EU countries have played a pivotal role in bolstering Pakistan’s foreign exchange reserves and supporting its economic stability.
US contributions
The US has remained a major remittance hub, often ranking among the top three sources.
Funds from the US help support household incomes, real estate, education, and investment in Pakistan.
Many remittances from the US flow through formal banking channels like the Roshan Digital Account (RDA) and fintech solutions, enhancing financial inclusion. Despite global economic shifts, remittances from the US have remained stable, with steady growth over recent years.
In the fiscal year 2023-2024 (FY24), Pakistan received $3.531 billion in remittances from the United States, marking an 11% increase compared to the previous fiscal year. In September 2024 alone, remittances from the US amounted to $275 million, reflecting a 4% increase from $264 million in September 2023. In October 2024, remittances from the US rose to $299.3 million, an 8% increase from the previous month.
Challenges and concerns
Despite its benefits, Pakistan faces challenges related to remittances, such as:
Dependence on Gulf economies: Any economic downturn or policy shift in Gulf nations could disrupt remittance flows.
Fluctuating exchange rates: Currency depreciation impacts the real value of remitted money.
Hundi and informal channels: A significant chunk of remittances still flows through informal channels, limiting the government’s ability to regulate and benefit from them.
Future outlook
The future of remittances in Pakistan remains promising, with digital banking and fintech solutions making transactions more seamless. However, to ensure sustainable growth, Pakistan must focus on diversifying its workforce, strengthening financial regulations, and reducing reliance on traditional remittance sources.
Conclusion
Remittances continue to be a lifeline for Pakistan’s economy, playing a pivotal role in economic stability and social welfare. While challenges persist, strategic government policies and advancements in financial technology can further enhance remittance inflows, securing a brighter economic future for the country.