Remittances Emerge as Pakistan's Key Economic Support, Covering Nearly Entire External Deficit

Remittances from Pakistanis working abroad have become the country's most important source of foreign exchange, with annual inflows estimated at around $44 billion, according to an analysis shared by a portfolio manager at East Capital. The transfers now cover close to 100 percent of Pakistan's external financing deficit and account for roughly 10 percent of gross domestic product, the analysis noted in a post on X, describing the flows as "Pakistan's oil."

The figures mark a sharp turnaround from 2023, when Pakistan faced a severe external financing crisis. Foreign exchange reserves at the time covered only about 1.5 months of imports, and the country came close to defaulting on its international bonds as external deficits widened and pressure on reserves intensified. Since then, gross foreign exchange reserves have risen nearly fivefold, while inflation has fallen from a peak of 38 percent to single digits, touching a low of 0.2 percent before settling at 9.6 percent in the latest reading.

According to the analysis, remittances have climbed steadily over the past 12 years, rising from approximately $16 billion in September 2014 to more than $43 billion by September 2026. By contrast, the current account balance excluding remittances has swung widely over the same period, underlining how heavily the country's external accounts rely on transfers from an estimated 10 million Pakistanis living overseas.

The analysis also pointed to strong performance in Pakistani equities, which delivered a 318 percent return in US dollar terms over the period, equivalent to an annualized return of 53 percent. The broader economic improvement was attributed to a combination of government stability, an International Monetary Fund program and rising remittance inflows.

With remittances now equivalent to about a tenth of GDP and covering almost the entire external deficit, overseas workers have become central to Pakistan's foreign exchange position. Without their transfers, the analysis concluded, the country's economic position would look considerably different.

The findings highlight the growing role of the diaspora in stabilizing Pakistan's external accounts and supporting the currency, even as the government continues to seek additional financing from international lenders and allies.