Hard Pass: Pakistan's Diaspora Unlikely to Bail Out Economy
Macro Pakistani
Trying to break down economic data on Pakistan into bite-sized digestible pieces.
Pakistan's current account stays afloat due to remittance inflows and exports, but with a grim outlook for remittances, achieving stabilization remains uncertain.
Pakistan was one of the top 5 recipient countries for remittances in 2022, however, its numbers have remained stagnant since January 2022. Despite a record-breaking emigration wave in 2023, with around 862,625 individuals leaving for employment opportunities abroad, Pakistan's remittance inflow has stayed disappointingly low.
This has also added to the current account’s low numbers. In South Asia, remittances expanded by 12.2% in 2022, while it is projected to slow to 7.2% in 2023 according to the World Bank. This variation is due to growth in Bangladesh, India, Nepal, and Sri Lanka, as opposed to declines in Afghanistan, Bhutan, Maldives, and Pakistan. Why has Pakistan failed to reach the milestone it achieved in 2022?The Pakistan Remittances Initiative, aimed at facilitating remittance flow and offering investment avenues, has boosted formal remittance flows by 13% according to a study.
But Pakistan’s issue is much more stubborn as it lies in its parallel exchange rates and evergreen black markets. A lot of factors contributed to the currency devaluation such as weak exports, rising interest rates that inflated the cost of debt servicing, and balance of payments pressures, leading to currency depreciation. Additionally, no one can ignore the erosion of trust and security in the country. Resultantly, the majority of migrants tend to favor informal channels to secure the most favorable rates for their earnings, thereby avoiding records in the national accounts.
But the story doesn’t end here…
While advanced economies attract skilled labor, Gulf countries offer employment opportunities to unskilled laborers. However, neither destination is expected to see an increase in South Asian employment in 2024. Furthermore, the World Bank anticipates that in Pakistan, pessimistic outlooks regarding the return of positive economic growth under the IMF-supported program will dampen public confidence. This may result in a 10% decline in remittances, which may fall below USD 22 billion in 2024 as opposed to USD 27 billion in FY23.
The country needs to develop better avenues for investment for overseas Pakistanis such as diaspora bonds instead of only relying on remittances, or otherwise the current account may not remain in surplus for long.
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About Us: Macro Pakistani is a data-driven research platform that aims to provide a basic understanding of Pakistan’s economy. If you have an interest in contemporary news but are currently overburdened with sensationalism and specialized vocabulary, we are the platform for you.