Why Pakistan's remittances have been on a steady rise

What is Pakistan's biggest asset? Its youth population? Its textile industry? No.

If recent figures are anything to go by, it's the overseas Pakistanis who are sending more money than ever back home. They have a big role in shoring up the economy.

For the eight months of fiscal year 2024-25 (FY25), overseas Pakistanis have been sending $3 billion on average every month compared to $2.5 billion last year.

Booming remittances is a very good thing for Pakistan. But why have they been rising?

Crackdowns and end to 'grey market'

Let's go back to 2023 when the economy was in a precarious situation. The rupee was dropping in the interbank market — where commercial banks buy and sell currencies with each other, with the interbank rate being used for trade, remittances, and official transactions.

On the other hand is the open market, where currency exchange companies operate. Here, individuals and businesses buy and sell foreign currencies at rates set by supply and demand, which may differ from the interbank rate. The open market rate is often used for travel, education, and small-scale transactions.

But dangerously, a third market grew prominent in 2023 — the illegal "grey" market, where foreign exchange is traded outside legal banking channels. It operated in secrecy to avoid government oversight and offered higher rates than the open market.

Prior to the crackdown that the government eventually launched against those illegally trading currency, the rupee's value had fallen to PKR 333 per dollar in the open market and PKR 360 in the grey market.

However, the government and security agencies launched a wide-ranging crackdown in September 2023, which stabilized the exchange rate and erased the grey market. Consequently, overseas Pakistanis also started sending money through official channels instead of hundi-hawala or grey market since the disparity in rates had ended.

Improving economic outlook

The exchange rate stability and the new International Monetary Fund (IMF) program in June 2024 improved Pakistan's economic outlook. And according to a study by the Asian Development Bank, overseas Pakistanis send more money back home when the economy is improving.

This year too, remittances have been rising with overseas Pakistanis sending home around $3 billion a month. And it's expected that total remittances this year will exceed the country's export income.

Hence, overseas Pakistanis truly are Pakistan's biggest asset.