Pakistan received $3.214 billion in remittances in July, marking a 7.4 percent year-on-year increase and continuing the upward momentum in inflows.

 

According to reports, remittances rose despite the federal government’s move to reduce incentives for commercial banks handling such inflows. Commercial banks raised concerns regarding the reduction in incentives, suggesting that their profit margins may take a severe hit.

 

However, reports indicate that the cut in incentives for banks is unlikely to restrict the flow of remittances, and banks are expected to make sizable profits from them. Data from the State Bank of Pakistan (SBP) has revealed that remittances in July fell by 5.6 percent on a month-on-month basis; however, reports reveal that market sentiment remains positive.

 

The largest sum of remittances in July came from the Kingdom of Saudi Arabia (KSA), with Pakistani expatriates sending back $823.7 million. This translates into an 8.4 percent increase in remittance inflows from the country on a YoY basis. Remittance inflows from the UAE, UK, and other Gulf Cooperation Council countries amounted to $665 million, $450.4 million and $296 million, respectively.

 

As per the data from reports, the strongest growth in remittance inflows came from European Union (EU) countries, increasing by a respectable 21 percent in July and allowing for $424.4 million to flow into Pakistan. 

 

While the large inflows contribute to Pakistan’s macroeconomic indicators, analysts have warned against relying on remittances to build foreign exchange reserves. Remittance inflows can fall drastically, as they did by 10.2 percent from the US in July, falling to just $269.6 million.

 

In fiscal year (FY) 2024-25, Pakistan received a staggering $38.3 billion in remittance inflows, marking a 27 percent increase on a YoY basis. However, the SBP has increased the remittance target to $40 billion in FY 2025-26.

 

As per reports, both the SBP and the federal government claim that remittances will continue to grow in the coming months, which explains the cut in incentives for commercial banks to attract remittances.

 

Remittance inflows serve to provide liquidity of foreign currencies to the market. Reports reveal that the SBP was able to purchase a whopping $9 billion from the open market throughout FY 2024-25, owing to the increase in dollar liquidity provided by remittance inflows.