Draft:Remittances to Pakistan

• Comment: Inappropriate content includes “’The future of remittances to Pakistan looks promising,” providing a lifeline for countless families” “Despite their importance, remittance transfers to Pakistan face several challenges.” “To address these challenges, efforts to reduce transaction costs and promote financial inclusion are essential.” “Growing remittance costs prove a major challenge” “Advances in digital payment technologies and mobile banking are likely to further streamline remittance processes, making it easier and more cost-effective for expatriates to send money home” This all reads like original research in an essay format. Theroadislong (talk) 16:02, 11 September 2024 (UTC)

• Comment: Much of the article continues to remain unreferenced. Utopes _{(talk / cont)} 05:36, 4 September 2024 (UTC)

• Comment: This draft is a draft on a subtopic of an existing article, Economy of Pakistan. Discussion as to whether a separate article for the subtopic is warranted should be on the talk page of the parent article, Talk:Economy of Pakistan.
  Please discuss the suitability of creating a separate subtopic article on the talk page of the parent article. Please resubmit this draft if there is rough consensus at the parent talk page to create the child article, or with an explanation that the child draft satisfies either general notability on its own or a special notability guide. Robert McClenon (talk) 04:35, 30 August 2024 (UTC)

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Remittances to Pakistan, accounting for almost 10% of the country’s GDP, constitute a substantial pillar of the national economy, offering financial support to many families. These financial transfers from overseas Pakistanis contribute to improving living standards and bolstering investments in education, healthcare, and housing.

Remittances play a multifaceted role in enhancing socio-economic development in Pakistan. By mitigating income disparities, they facilitate sustainable livelihoods and contribute to poverty alleviation efforts . Additionally, remittances serve as a crucial safety net during economic downturns and natural disasters, ensuring resilience for recipient families .

Remittances constitute a primary source of foreign exchange for Pakistan, significantly contributing to its balance of payments . The majority of remittances originate from the Middle East, particularly Saudi Arabia and the United Arab Emirates. Other notable sources include the United Kingdom, the United States, and Canada .

History

Pakistan has consistently ranked among the top recipients of global remittances in recent years. As of FY 2022, remittance inflows reached $31 billion, representing a significant percentage of the national GDP. The remittance inflows to Pakistan plummeted to $27 billion in FY 2023 due to several economic circumstances in Pakistan .

The World Bank, in its most recent report, “Migration and Development Brief 40”, says remittance inflows to Pakistan anticipate a recovery of 7% reaching $28 billion in 2024, while the country will maintain the growth with another 4% increase to reach $30 billion in remittances in 2025 .

This growth can be attributed to the expanding Pakistani diaspora and advancements in digital remittance services, which have simplified fund transfers and enhanced economic stability. Digitalization and remittance service providers (RSPs) have helped foster financial inclusion, increase remittance inflows, and combat social evils like money laundering .

Informal and illegal remittance channels, such as Hawala and Hundi, have a detrimental impact on Pakistan's economy. These unregulated systems result in significant losses for the government, estimated at $4.25 billion in 2023 alone. This can be attributed to the black market premium offered by Hawala/Hundi operators, which was PKR 25 more than the interbank rate per dollar in 2023 .

Year	Remittances (US$ billion)	Percent of GDP (%)
1990–1991	2.10	0.70
1995–1996	4.60	2.32
2000–2001	1.50	1.20
2005–2006	4.60	3.50
2010–2011	11.20	5.00
2015–2016	19.90	7.00
2020–2021	24.60	8.00
2022-2023	32.00	10.00
2024-2025	30.00~	9.37

Primary Remittance Source Regions

The primary sources of remittances to Pakistan include the Gulf Cooperation Council (GCC) countries, the United States, the United Kingdom, and several countries in Europe. Saudi Arabia and the United Arab Emirates stand as the largest contributors, with significant annual contributions from their Pakistani expatriate communities . In 2022 alone, remittances from Saudi Arabia and the UAE amounted to $7.7 billion and $6.1 billion, respectively .

Other significant sources of remittances include countries like Canada and Australia, where several Pakistani immigrants reside. The economic policies and labor market conditions in these host countries influence the volume of remittances sent to Pakistan. Moreover, cultural and familial responsibilities drive the flow of remittances, as expatriates prioritize supporting their families back home .

Pakistani Diaspora and Their Role in Remittances

The Pakistani diaspora began to grow significantly in the 1970s, coinciding with the oil boom in the Gulf Cooperation Council (GCC) countries. Many Pakistani workers sought employment opportunities in sectors such as construction and agriculture, driven by the economic prosperity of these regions. This migration led to strong ties between Pakistan and countries like Saudi Arabia and the United Arab Emirates, fostering cooperation on labor migration policies .

Between 1971 and 2020, over 11 million Pakistani workers migrated to the GCC countries and other Middle Eastern nations. This migration corridor between South Asia and the GCC became the largest growing migration corridor globally between 2000 and 2020, with an increase of 13 million migrants during this period .

Remittances from the Pakistani diaspora have steadily increased over time, demonstrating resilience even during economic crises. These remittances have shown to be countercyclical to the recipient country's economy, meaning they increase during economic downturns. This was evident during the financial crises in the Gulf countries and the COVID-19 pandemic when remittances continued to rise despite challenges .

The United Kingdom has a significant and diverse Pakistani diaspora population dating back to a long history of migration. As of 2023, there were nearly 1.6 million Pakistanis residing in the UK, representing 2.7% of the total population . While the flow of migrants to the UK has decreased in recent years, the existing diaspora continues to make substantial contributions to the country's social, economic, and cultural fabric. Many Pakistani professionals hold high-skilled and medium-high skilled jobs and play vital roles in sectors such as healthcare .

The Pakistani diaspora has been a major source of remittances, with significant growth observed from 2019 to 2021. Despite challenges like the COVID-19 pandemic, currency depreciation, and the 2022 floods, remittances from abroad have remained a crucial source of foreign exchange for Pakistan .

Utilization of Remittances

Remittances predominantly support household consumption, education, healthcare, and investment in small businesses and real estate. These investments stimulate local economies, foster entrepreneurship, and contribute to infrastructural development .

Remittances have a significant impact on education and have a long-term impact on developing a skilled workforce. In healthcare, they enhance access to better medical services and improve overall health outcomes .

Remittances to Pakistan have a profound impact on the country's economy, influencing various sectors and contributing to overall development. Studies and research by experts indicate that a general 1% increase in inward remittance inflows contributes to a significant 0.23% improvement in the living standards of families relying on remittances for their basic needs .

A significant portion of remittances is allocated towards meeting essential needs such as food, clothing, and shelter. Remittances also play a crucial role in funding education, enabling families to send children to schools and universities. Many families rely on remittances to cover healthcare expenses, including medical treatments and medications. Besides, remittances are often used to repay debts and improve financial stability .

A common investment strategy among several remittance recipients in Pakistan is purchasing property, either for personal use or as a rental income source. Money received from abroad is also used to start or expand businesses, generating employment opportunities and contributing to economic growth. Many families save a portion of their remittances for future needs, such as education, healthcare, or retirement . Remittances can facilitate access to formal financial services, such as bank accounts and loans, for those who may otherwise be excluded. These financial funds received from overseas Pakistanis can encourage financial literacy as families learn to manage their finances effectively.

Note: It's important to note that the specific utilization of remittances can vary depending on individual circumstances, regional differences, and economic conditions. However, these general categories provide a comprehensive overview of how remittances are used in Pakistan.

Challenges in Remittance Transfers

Remittance transfers to Pakistan encounter various challenges. High transaction costs, exchange rate fluctuations, and regulatory hurdles can hinder the smooth flow of funds . Informal channels, such as hundi or hawala, remain prevalent due to their lower costs and ease of use, posing a challenge for formal financial institutions and regulatory authorities . Informal remittance channels, though convenient, often lack transparency and security, hindering the safe and efficient transfer of funds.

Efforts to reduce transaction costs and promote financial inclusion are being made to address these challenges. Increasing remittance costs present a significant challenge for most Pakistani migrants, expatriates, and diasporas who regularly transfer money home from abroad. A case study revealed that a 4.23% transfer fee was applied when sending $200 to Pakistan through the United Bank Limited .

Impact on the Economy

Remittances play a stabilizing role in Pakistan's economy, especially during economic downturns or natural disasters. They provide a consistent source of foreign exchange reserves, helping to maintain the stability of the national currency and balance of payments. Furthermore, remittances can stimulate economic development by increasing household consumption and encouraging entrepreneurship .

The influx of remittances contributes to the development of the financial sector by increasing deposits in banks and other financial institutions. This enhances their capacity to extend credit and support economic activities. The multiplier effect of remittances extends the benefits beyond recipient families, as increased spending stimulates demand for goods and services, driving economic growth . Additionally, remittances often lead to improved social indicators, such as higher literacy rates and better health outcomes, which are crucial for long-term economic development. Remittances also play a significant role in reducing income inequality and promoting inclusive growth by providing resources to vulnerable segments of society

Government Initiatives

The Pakistani government has implemented various initiatives to facilitate remittance flows and encourage the use of formal channels. The State Bank of Pakistan (SBP) and the Ministry of Overseas Pakistanis and Human Resource Development have introduced programs like the Pakistan Remittance Initiative (PRI) to enhance the efficiency and reliability of remittance services. These efforts aim to lower transaction costs, improve service delivery, and incentivize overseas Pakistanis to send money through formal banking channels.

The PRI has been instrumental in promoting partnerships between financial institutions and technology providers to develop innovative remittance solutions. Additionally, the government has launched awareness campaigns to educate expatriates about the benefits of using formal channels and the risks associated with informal methods. Policy measures, such as offering preferential exchange rates and reducing remittance fees, have also been implemented to make formal channels more attractive. These initiatives have contributed to a gradual shift from informal to formal remittance channels, improving the overall remittance ecosystem

Future Outlook

Remittances to Pakistan are projected to grow, with expected growth in the Pakistani diaspora and improved economic conditions in host countries. Advances in digital payment technologies and mobile banking are expected to streamline remittance processes, making it easier and more cost-effective for expatriates to send money home. Continued government efforts to regulate and facilitate remittance transfers will play a crucial role in sustaining this vital economic lifeline. According to recent projections, the transaction value in the remittances market is poised for substantial growth. It is anticipated to reach US$28 billion in FY2024. This upward trajectory is expected to persist, with an annual growth rate (CAGR) of 5.13% from 2024 to 2028.