Remittances now cover Pakistan's entire external deficit, says analyst

Analyst Emre Akcakmak, Head of Frontier Markets and portfolio advisor at East Capital, has revealed that remittances from overseas Pakistanis now cover the entire external deficit of Pakistan and account for about 10% of the country's GDP. This is one of the highest percentages globally. Without the estimated 10 million Pakistani diaspora's remittances, the local economy would be significantly different.

State Bank of Pakistan (SBP) data shows that workers' remittances reached $3.9 billion in October, a 14% increase from $3.42 billion in the previous year. Inflows grew by 8.5% to $3.6 billion in September. Cumulative remittances from July to October FY27 increased by 14% to $14.8 billion, up from $13 billion in the same period the previous year.

The SBP recently raised its forecast for FY27 remittances to $45 billion, up from a previous estimate of $44 billion, citing resilient inflows in the first quarter. This improvement marks a stark contrast to 2023 when Pakistan was on the brink of defaulting on its foreign currency bonds. The external deficits had surged, and central bank reserves were only able to cover imports for 1.5 months.

However, since then, gross FX reserves have nearly quintupled, inflation has dropped to single digits, and equities have surged 318%. Akcakmak attributes this turnaround to the 10 million Pakistanis living abroad and their remittances, which he considers as "Pakistan's oil".