War impact looms as remittances dip 5% YoY

Analysts warn April, May inflows from KSA, UAE crucial as Eid impact fades

KARACHI:

Pakistan's workers' remittances posted a year-on-year decline in March 2026, reflecting emerging external risks even as overall inflows remain strong, with analysts warning that escalating geopolitical tensions in the Middle East could weigh on future trends.

According to the latest data released by the State Bank of Pakistan (SBP), remittances stood at $3.83 billion in March, down about 5% compared with $4.05 billion in the same month last year, although inflows increased 17% on a month-on-month basis. Despite the decline, cumulative remittances for July-March FY26 reached $30.3 billion, registering an 8.2% year-on-year increase, highlighting continued resilience in overseas inflows.

Analysts attribute the monthly rise primarily to seasonal factors, particularly increased transfers ahead of Eidul Fitr. Overseas Pakistanis typically send higher remittances during this period to support household spending.

Topline Securities noted that remittance growth momentum remains intact due to higher manpower exports in recent years, a reduced gap between formal and informal exchange markets, and the continuation of government incentive schemes encouraging official channels. However, the firm cautioned that the ongoing Israeli, United States aggression against Iran could create downside risks, particularly for inflows originating from the Gulf region. "The recent regional situation is likely to weigh on remittance inflows going forward," Topline stated.

Echoing similar concerns, Waqas Ghani Kukaswadia, Head of Research at JS Global, said the March spike was "largely seasonal in nature," adding that the real trend would become clearer in the coming months. "April and May numbers will be crucial, especially from Gulf Cooperation Council (GCC) countries, unless the ceasefire holds and turns into a permanent arrangement," he noted.

Country-wise data shows Pakistan's heavy reliance on Gulf economies. In March alone, remittances from the Kingdom of Saudi Arabia (KSA) amounted to $918 million, while inflows from the United Arab Emirates (UAE) stood at $823.7 million, making them the two largest contributors. For the July-March period, Saudi Arabia contributed $7.08 billion, followed by the UAE at $6.27 billion, reflecting steady growth of 3% and 9.9% year-on-year, respectively.

Other major sources included the United Kingdom with $4.60 billion and the United States with $2.66 billion, although inflows from the US recorded a decline of about 5.7% year-on-year, indicating shifting diaspora dynamics. The European Union also emerged as a growing corridor, with inflows rising nearly 20% year-on-year to $3.91 billion, driven by countries such as Italy, Spain and Germany. Analysts warn that Pakistan's reliance on a few key regions, particularly the Gulf, makes remittances vulnerable to external shocks, including geopolitical tensions, oil price volatility and economic slowdowns in host countries.

"These numbers suggest that the remittance channel has not cracked under the pressure of the Middle East war, but it has become more exposed," said Dr Abid Qaiyum Suleri, Executive Director of the Sustainable Development Policy Institute (SDPI). "The March dip is not, on its own, a sign of stress; the year-to-date increase provides comfort." Remittances remain a critical pillar of Pakistan's economy, supporting foreign exchange reserves, stabilising the currency and sustaining household consumption. Over the last five years, more than three million Pakistanis have migrated abroad in search of better economic opportunities, often enduring long separations from their families to provide financial support back home.

The importance of remittances has grown further amid widening external imbalances. Data from the Pakistan Bureau of Statistics shows that the country's trade deficit widened by 22.65% to $27.81 billion in 9MFY26, compared with $22.67 billion in the same period last year. The expanding deficit, driven by rising imports and declining exports, has increased reliance on remittance inflows to cushion the current account and maintain macroeconomic stability.

Looking ahead, analysts expect remittances to remain broadly stable but subject to geopolitical risks. Topline Securities projects total inflows to reach $41 billion in FY26, representing a 7.5% increase over FY25. While achieving $42 billion may be difficult, experts believe total remittances are likely to remain above $40 billion, supported by continued labour migration and policy incentives. However, the outlook remains closely tied to developments in the Middle East. Any prolonged escalation in tensions could disrupt labour markets, impact the incomes of overseas workers and slow remittance flows. Conversely, a sustained ceasefire could restore stability in key host economies and support continued inflows. For now, the March data reflects a mixed picture, strong underlying growth tempered by emerging external risks, highlighting the delicate balance shaping Pakistan's remittance outlook in the months ahead.