From trade to transfers: how remittances redefined Pakistan’s external balance

A few months ago, Nukta posted a video that became quite popular. It stated that Pakistan’s biggest asset was, in fact, not in Pakistan.

That asset was overseas Pakistanis, who remain the single most important source of foreign exchange stability for the country. In fiscal year 2024-25 (FY25), remittances surged to a record $38.3 billion, providing critical support to Pakistan’s current account.

While exports typically serve as a primary engine of growth for most economies, Pakistan presents a different case. Exports have a direct impact on economic activity through production and trade, whereas remittances influence GDP indirectly by fueling household consumption and investment.

Both, however, play a crucial role in strengthening the current account though through very different types of inflows. In FY25, remittances accounted for nearly 10% of GDP, surpassing exports, which remained below 8%. This highlights Pakistan’s increasing dependence on external inflows rather than sustainable, trade-driven growth.

Over the past two decades, Pakistan’s external balance has tilted from trade to transfers.

Remittances now account for nearly half of current account inflows—rising from 20.6% in FY03 to 46.3% in FY25—while the export share has slipped from 53.3% to 39%.

“Remittances now dominate Pakistan’s current account, surpassing export inflows. Over the past two decades, their share in the current account has surged, while that of exports has sharply declined. This structural shift reflects the government’s growing reliance on remittances to sustain the balance. However, long-term foreign exchange stability can only stem from a strong manufacturing base and export-led inflows,” Sarah Javaid, trade economist at All Pakistan textile Mills Association.

Government incentives

The rise in remittances has been shaped by deliberate policy efforts to channel overseas income through formal systems and encourage banks to mobilize inflows. Government incentives such as fee reimbursements and performance-based rewards made remittances a stable and lucrative source of foreign exchange, allowing them to gradually overtake exports as Pakistan’s main current account inflow.

When the government rolled back incentives for remittance inflows under IMF-led fiscal measures, banks became less active in attracting overseas transfers. The move led to a visible slowdown in inflows early in the fiscal year, prompting the government to release PKR 30 billion from contingency funds to support the system. That’s how closely Pakistan’s external stability is tied to remittances.

Country comparison

According to World Bank data, Pakistan relies far more on remittances than its regional peers.

In 2024, remittances equaled 9.4% of GDP, the highest in the region. This gap underscores Pakistan’s dependence on overseas workers for foreign exchange.

The surge over the years reflects both strong inflows from the Gulf and limited export diversification at home, where manufacturing stagnation and import restrictions have capped export growth despite a weaker rupee.