Record-breaking remittances reach an all-time high of $3.2 billion in July
The remittances sent home by overseas Pakistanis experienced a significant surge in July 2022, reaching a record high of $3.2 billion, marking a 7.4% increase year-on-year. This growth was primarily driven by stricter foreign exchange regulations, enhanced monitoring of the open market by law enforcement, and the encouragement of formal channels for money transfer.
These measures helped reduce the gap between interbank and open market exchange rates, incentivizing overseas Pakistanis to send money through official channels rather than informal ones. Saudi Arabia remained the top source of remittances, with other key contributors being the United Arab Emirates, the United Kingdom, and the United States.
The seasonal effect of holidays like Eid also boosted remittances, although this boost normalizes afterward. Government crackdowns on informal money transfer systems such as hawala and hundi, and improved exchange rate management by the authorities further strengthened reported remittance figures.
The trade deficit is expected to widen due to increased import demand, improving domestic economic activity, global demand slowdown, and unfavourable export prices, particularly of rice. However, remittances played a crucial role in stabilizing the current account last year, with an increase of $8 billion.
The State Bank of Pakistan (SBP) expects remittances to rise to over $40 billion in FY26, compared to $38.3 billion a year before. Inflows are likely to improve, partly due to higher expected private flows following the recent upgrade in the country's credit rating.
Last month's remittances were higher due to inflows on the eve of Eidul Azha, according to Awais Ashraf, director of research at AKD Securities Limited. The SBP's FX reserves are projected to rise to $15.5 billion by end-December 2025.
The government's crackdown on illegal dollar trade last month contributed to the rupee's stability, with the currency stabilizing at 282 per dollar in the interbank market. The Pakistan Remittance Initiative scheme and remittance incentives for financial institutions will continue, as announced by the prime minister.
The current account deficit is projected in the range of zero to 1.0 per cent of GDP in FY26. Despite uncertainty over the continuation of the workers' remittances subsidy, inflows remained strong in July, with remittances more than offsetting the widening trade deficit.
- The United States, being among the top contributors of remittances to Pakistan, is anticipated to continue influencing the nation's finance and business sector significantly.
- The Pakistan Remittance Initiative scheme, announced by the prime minister, aims to further encourage formal money transfer channels, possibly affecting business practices in countries like the US.
- The anticipated rise in remittances to over $40 billion in FY26, as expected by the State Bank of Pakistan (SBP), could potentially impact the world's financial markets, especially those connected to the US.
