Strong remittance growth a good omen for Pakistan

Growing macroeconomic certainty has led to a sharp rebound in remittance inflows and is helping reinforce economic stability.

It has been forever since I published something here, and the credit for me making another attempt to restart this page goes to Fasi Zaka. I am going to try to share my thoughts on various topics on a weekly basis from here on out, and top of mind for me this week is the strong rebound Pakistan has seen in remittance inflows over the last few months.

Here’s the key takeaway: Remittance inflows grew by 39 percent year-on-year to reach $8.8 billion in the first quarter of FY2025.

The breakdown is as follows:

1. UAE: +67% in Q1 of FY25 v. -31% in Q1FY24

2. UK: +42% v. -13%

3. Saudi Arabia: +42% v. -22%

4. EU: +29% v. +0.8%

5. USA: +17% v. -12%

This is fantastic news for Pakistan, as inflows of dollars via remittances, debt, and investment are critical to maintaining a stable current account. This reinforces currency stability, which helps with inflation, and overall economic certainty in the country.

With the IMF program on track, global energy prices stable at a low level, and global interest rates falling, we can safely say that the very worst of the economic crisis that has plagued Pakistan is behind it for now. And yes, while the stock market is not an indicator of the economy, the massive rally we have seen on the PSX indicates that the broader positive sentiment is having an impact on equities (along with the easing cycle in interest rates).

When the country was in the midst of significant volatility over a year ago, I was quite bearish about the Pakistani rupee and the overall default prospects for the country. Those fears have not materialized, largely due to the common sense policies pushed by Shehbaz Sharif - who helped lock in the IMF SBA - the caretaker government, and the existing ruling dispensation in Islamabad and Rawalpindi.

The uncertainty that prevailed at the time led to a diversion of remittance flows into the informal market, and a gap in the formal and informal price of the PKR accelerated this transition.

Actions taken to clamp down on the hawala / hundi markets, including steps taken by law enforcement agencies and the central bank, paired with policies that have helped restore some level of macroeconomic stability have reversed this trend.

This is why we are seeing a strong growth in remittance inflows, and this growth should normalize in the coming months. Which means that the government now must maintain stability and take actions that unlock new investment flows, as the upside from remittances has largely been achieved.

Whether that can happen remains to be seen, but for now the strong growth in remittances exhibits that actions taken over the past few months are bearing fruit.