Relying on remittances

It is vital to grow manufacturing, IT and other productive service industries


Editorial July 11, 2025 1 min read

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Remittance inflows have shattered records, reaching an unprecedented $38.3 billion in FY25 — a staggering 26.6% year-on-year increase. March 2025 alone saw $4.1 billion sent to the country, the highest monthly inflow in history. Saudi Arabia emerged as the top contributor by a wide margin, followed by the UAE, the UK and the US. While this windfall offers critical respite for an economy battered by inflation and debt, it also represents a major challenge that has never gotten a suitable policy response.

We must note that at least part of the remittance increase is due to successful policymaking and enforcement, specifically cracking down on informal transfer systems such as hundi/hawala. Restrictions initially introduced to comply with FATF requirements have helped bring many people who relied on illegal transfers into the formal banking system, which has also increased government revenues. Narrowing the gap between interbank and open market rates has also encouraged more legal transfers. At the same time, the numbers for migrant labour continue to increase because of sparse job prospects in Pakistan.

Many economists say Pakistan is a prime example of a country with 'Dutch disease', where heavy foreign currency inflows raise the real exchange rate and erode export competitiveness, keeping other sectors from developing.

Further compounding the problem is that while Dutch disease is usually associated with natural resource-focused economies, which keep a large share of the related economic activity in the country, remittances only represent the savings of overseas workers — the economic value of their labour and spending on themselves stays in the countries where they are based. Meanwhile, most of the money that does return home is used for consumption, such as household expenses, rather than investment that would significantly grow the economy.

It is vital to grow manufacturing, IT and other productive service industries, if we are to move away from the current trajectory, where our biggest export could soon end up being our own workforce.

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