Record remittances, stable exports beef up Pakistan’s external account

Record high remittances and stable exports have bolstered Pakistan’s external account, with the highest remittances coming from Saudi Arabia, reports WealthPK.

In the first quarter of Fiscal Year 2024-25 (Q1FY2025), remittances hit a historic $8.8 billion, marking an increase of 39% from the previous quarter, shows the finance ministry’s October 2024 outlook report. 

The highest inflows came from Saudi Arabia (24.5%) taking the foreign exchange reserves to $16 billion, including $11 billion held by the central bank as of October 18.

The projected October figures show exports expected to be $2.5-2.8 billion, imports $4.5-4.9 billion, and remittances $2.8-3.3 billion. These factors reflect a positive trend toward stabilizing the country’s external sector, largely due to the increased use of formal remittance channels as a result of the narrowing gap between the open market and interbank exchange rates.

Previously, Pakistan had lost $3.3 billion annually to informal channels like Hawala due to the exchange rate disparities, but the recent exchange rate adjustments have redirected remittance flows into the official systems, which now offer competitive rates.

The central bank has also incentivized the formal remittance channels by offering fixed and variable rewards to the banks and exchange companies, further supporting legal remittance flows.

The banks will receive SAR20 for each remittance over USD100 and additional rewards for growth above the previous year’s remittances. The exchange companies will get PKR2 for each US dollar they bring in, with extra incentives if the remittance growth reaches or exceeds certain levels.

These policies have had a tangible impact on reserves, lending stability to Pakistan’s external accounts and easing financial pressures. However, the finance ministry’s report acknowledges that while remittance inflows offer crucial short-term support, sustained external account health will depend on broader economic reforms to reduce dependence on remittances.

With remittances expected to continue supporting the external sector, the report suggests that a stable current account is achievable if the export trends hold steady and import levels remain in check. 

The growth in remittance inflows, therefore, plays a pivotal role in cushioning Pakistan’s economy, providing the much-needed financial buffer amidst the ongoing global and domestic challenges.

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