Pakistan’s remittance inflows have started the new fiscal year on a strong note, offering some relief to an economy that remains heavily dependent on foreign exchange earnings to maintain external stability. Workers’ remittances increased by 15 per cent during July-August 2026, reaching $7.3 billion compared with $6.4 billion during the corresponding period of the previous year. The increase has strengthened the country’s external position and provided additional support to foreign exchange reserves at a time when exports remain subdued and the external environment is highly uncertain.
The latest figures certainly provide grounds for encouragement, but the sustainability of this growth needs to be carefully assessed, particularly after the government and State Bank of Pakistan discontinued two important remittance incentive schemes from July 1, 2026. Saudi Arabia remained the largest source of remittances during the first two months of the fiscal year, contributing $873.5 million, equivalent to around 12 per cent of total inflows. The United Arab Emirates followed with $749.8 million, or about 10 per cent. The United Kingdom contributed $563.7 million, representing 7.7 per cent, while inflows from the United States stood at $308.9 million, or around 4 per cent of the total.
The longer-term trend is equally significant. Remittances have generally increased since 2020 and reached a record $41.6 billion during fiscal year 2025-26. The Economic Survey 2025-26 attributed much of the improvement to measures taken by the government and the SBP to strengthen formal remittance channels. The increased use of digital payment platforms, including RAAST, improved transaction speed and transparency, while changes to the rebate structure for transfer charges helped reduce costs for remitters and service providers.
A relatively stable exchange rate also encouraged overseas Pakistanis to use banks and licensed exchange companies rather than informal channels. These developments helped bring more remittance transactions into the documented financial system and reduced the incentive to send money through unofficial markets. However, an important change took place at the beginning of the current fiscal year. From July 1, the SBP discontinued two government-backed incentive schemes under the IMF programme. One was the Sohni Dharti Remittance Programme, under which overseas Pakistanis received points for sending money through official channels that could subsequently be redeemed for various benefits. The other was the telegraphic transfer charges incentive scheme, under which the government reimbursed commercial banks and exchange companies for transfer fees waived for remitters.
The latter scheme represented a considerable fiscal cost, with annual reimbursements estimated at between Rs100 billion and Rs120 billion. From the government’s perspective, discontinuing such programmes can reduce expenditure at a time when fiscal space is severely constrained. However, the impact on remittance behaviour needs to be monitored carefully.
The fact that remittances increased during the first two months after the withdrawal of the incentives is encouraging. It suggests that overseas Pakistanis have, at least for the time being, continued to rely on formal channels despite the removal of these benefits. But two months are not sufficient to establish whether the change will have no long-term effect. Many Pakistani workers in the Gulf are employed in relatively low-paid and unskilled occupations and may be more sensitive to transaction costs and incentives than higher-income expatriates.
The government and the SBP should therefore closely monitor remittance flows over the coming months, particularly from the Gulf states. Any sustained decline in formal-channel inflows would warrant a reassessment of the policy. The objective should not necessarily be to restore expensive subsidies, but to ensure that official channels remain competitive, convenient, transparent and easily accessible.
The ongoing conflict in the Middle East creates another source of uncertainty. Gulf countries account for a substantial share of Pakistan’s remittance inflows, and prolonged regional instability could affect employment, incomes and the ability of Pakistani workers to remain in those markets. Disruptions to travel, business activity or labour markets could eventually be reflected in remittance flows.
The SBP therefore needs to remain alert to any emerging weakness in inflows, while the government should maintain active engagement with Gulf countries to protect the interests of Pakistani workers. Ensuring that Pakistani nationals retain access to employment opportunities in these markets is important not only for individual households but also for the country’s external account.
At the same time, remittances cannot substitute for exports. Pakistan’s merchandise exports have remained broadly stagnant at around $29 billion to $30 billion annually, while imports have continued to rise. The resulting trade deficit places persistent pressure on the current account, leaving remittances to bridge much of the external financing gap.
There is also a fundamental economic difference between export earnings and remittances. Export proceeds are normally linked to domestic production and therefore generate employment, business activity and additional economic value within the country. Exporting companies can also reinvest part of their earnings in expanding production and improving capacity. Remittances, by contrast, are primarily household income and are largely used for consumption, although they also finance education, housing, healthcare and other productive household expenditure.
Strong remittances can therefore improve living standards, but a consumption-led increase in foreign exchange inflows can also contribute to demand-side inflation if domestic production does not expand sufficiently to meet higher demand. For this reason, remittances should be regarded as an important external support rather than a replacement for a competitive export sector.
Pakistan must also prepare for a changing international labour market. The demand for unskilled and poorly educated workers in the Gulf is unlikely to remain as strong indefinitely as technology, automation and changing economic structures alter labour requirements. Pakistan’s response should be a comprehensive skills-development programme designed to equip workers with technical and vocational qualifications that match emerging demand in Gulf and other international markets.
Training in construction technology, electrical and mechanical trades, healthcare, information technology, logistics and other specialised fields could help Pakistani workers move into better-paid and more secure employment. A skilled overseas workforce would not only improve household incomes but could also generate higher remittance earnings over time.
The urgency of maintaining both remittances and exports is underlined by Pakistan’s foreign exchange position. SBP data showed reserves at $17.1 billion on August 28, 2026, with a significant portion of the recent strengthening linked to external borrowing. Even at this level, reserves remain under pressure when measured against the country’s import requirements and the need to maintain adequate external buffers.
Pakistan therefore cannot afford complacency over the latest remittance figures. The 15 per cent increase is a welcome development and has provided valuable support to the external account, but the country’s longer-term objective must be to diversify its sources of foreign exchange. That means strengthening exports, attracting sustainable foreign investment, developing a skilled overseas workforce and ensuring that formal remittance channels remain attractive.
The latest figures offer breathing space, but not a permanent solution. Remittances have repeatedly helped Pakistan manage external pressures, yet dependence on workers’ earnings abroad also exposes the economy to changes in foreign labour markets, geopolitical disruptions and policies in host countries. The task for policymakers is to use the present improvement to strengthen the foundations of the economy rather than become dependent on another temporary external cushion. A resilient external sector ultimately requires both a growing export base and sustained, formal remittance inflows.