Pakistani remittances grew 32.89% year-on-year during July-December 2024 to $17.845 billion—a whopping growth from $13.845 billion during the same period the previous year. The inflow has been a welcome boost to the economy of the country, reducing the burden on foreign exchange reserves and steadying the external account. While remittances keep rising, however, Pakistan’s trade deficit is increasing, largely because export growth is lagging and imports are skyrocketing.

In December 2024 alone, the trade deficit rose to $2.44 billion, a 35% year-on-year rise, as imports reached a 27-month high. Exports, however, increased by just 0.67% to $2.84 billion, while imports rose 14% to $5.285 billion. These trends point to a basic economic issue—Pakistan cannot depend on remittances alone for stability; a robust export sector is essential for long-term growth.

Even as remittances have been major contributors to fueling the economy and foreign exchange reserves, export performance of Pakistan continues to remain poor. For the first six months of 2024-25 (Jul-Dec), the exports increased 11% at $16.56 billion but imports also inched up by 6.1% at $27.7 billion and the trade gap remained at an elevated $11.17 billion.

December’s steep increase in imports is a cause for alarm. With international demand for major Pakistani exports, including textiles, still weak, the nation could face additional economic pressure if exports do not pick up. The increasing import trend, combined with sluggish export growth, is a concern.

Home remittances also recorded a spectacular 32.89% growth in the months of July-December 2024 over the corresponding period of the previous year. Remittance inflows during the first half of the current fiscal year totaled $17.845 billion, against $13.845 billion in the corresponding period a year ago and $14.435 billion during July-December 2023.

This spike is higher than the 24.9% growth seen during the same period of 2021. The year 2021 is a better benchmark because remittance inflows suffered a big blow in 2022 as a result of then-Finance Minister Ishaq Dar’s interference in the foreign exchange market. His policies, even with declining reserves that dropped below $3 billion, resulted in multiple exchange rates and pushed remitters to opt for unofficial channels such as hundi and hawala rather than official banking channels.

Remittances accelerated once more during July-December 2023 after Dar’s policies were abandoned in a deal with the International Monetary Fund (IMF) to arrange a $3 billion, nine-month Stand-By Arrangement. If the trend persists, remittances for the fiscal year ended June 30, 2025, would be some $35.69 billion—$4.45 billion more than $31.2 billion during the 2021-22 fiscal year. Though the government has made a conscious effort to promote the use of official channels for remittances, a July 2024 Asian Development Bank (ADB) working paper pointed out important economic determinants of remittance growth. The research pointed out economic activity, domestic interest rates, and inflation as primary drivers and also mentioned that remittance flows are primarily determined by deeper structural and behavioral determinants in addition to these economic variables.

Even as the government asserts that inflation has fallen to 2.4% through January 2025, private sector real wages—covering 93% of workers—have not moved since the early days of the COVID-19 pandemic in 2020. At the same time, unemployment has risen over 10%, sending increasing numbers of Pakistanis abroad in search of work, usually at immense personal cost.

Pakistani poverty levels jumped to 25.3% in 2024 from a seven-percentage-point climb in 2023 and sending about 13 million more into poverty, says a World Bank report. Entitled “Poverty Projections for Pakistan: Nowcasting and Forecasting,” the report points out that poor households were disproportionately affected by more stringent economic conditions, further exacerbating poverty levels. It also indicates that Pakistan’s capacity to address such issues is still limited since the country has not carried out a recent household survey since 2019.

Interest rates were lowered to 12%, but large-scale manufacturing—a key pillar of economic growth and organized employment—continues to be in decline, showing a minus 3.81% growth in November 2024, from minus 0.71% in November 2023.

Further, while the government estimated economic growth at 3.5% for the year, free economists put it lower at between 2.7% and 2.5%. The ADB report highlighted the significance of remittances in insulating Pakistan’s economy from balance-of-payment shocks. With the global environment being uncertain, it is still essential to comprehend these inflows and the underlying trends for future economic stability.

The economy of Pakistan stands at a turning point. While remittances provide a short-term buffer, they cannot serve as a substitute for the long-term gains from a competitive and diversified export base. Experts have been stressing that new markets should be sought, product quality be improved, and industrial efficiency increased to provide sustainable economic stability.

Meanwhile, policymakers need to manage import expansion prudently so as not to put too much pressure on the external account. The government has been trying to encourage formal remittance inflows and stamping out illegal money transfer networks, but other economic issues remain. Brain drain and increasing unemployment are also serious issues, with educated workers emigrating because of a lack of job opportunities.

To achieve long-term economic stability, Pakistan needs to focus on export growth complemented by increasing remittances. This will need bold economic reforms, incentives for exporters, and policies to boost industrial productivity. Without a robust export sector, Pakistan’s dependence on remittances and foreign assistance will continue to intensify, constraining its scope for sustained and inclusive growth.