Arshad Mahmood Awan
Remittances continue to prop up Pakistan’s fragile economy, with inflows demonstrating remarkable resilience even amid global uncertainty. In October 2025 alone, overseas Pakistanis sent around $3.4 billion—showing an impressive 12 percent increase year-on-year and a 7 percent rise from September. The largest contributions came from Saudi Arabia ($821 million), the UAE ($698 million), the UK ($488 million), and the US ($290 million). During the first four months of FY2026, total inflows reached $12.9 billion, reflecting a 9.3 percent increase over the same period last year. These figures reinforce the status of remittances as a vital lifeline for Pakistan’s external accounts—cushioning the trade deficit, supporting foreign reserves, and stabilizing the rupee amid growing import pressure.
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However, this short-term stability hides a deeper structural imbalance. Pakistan’s heavy dependence on remittances has transformed from a blessing into a crutch. Economists are increasingly warning that this pattern resembles the “Dutch disease”—a condition where large foreign inflows strengthen the local currency, erode export competitiveness, and push the economy toward low-value domestic sectors. Originally coined to explain the Netherlands’ decline in manufacturing following its natural gas boom in the 1960s, the term now perfectly describes Pakistan’s economic paradox: strong remittance growth but stagnant industrial output.
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According to the Centre for Development Policy Research, remittances—while stabilizing the balance of payments—can distort incentives. They make exports less competitive by appreciating the real exchange rate and shifting resources away from tradable sectors like manufacturing toward consumption-driven industries such as retail, real estate, and services. The economy thus grows outwardly stable but inwardly hollow, surviving on inflows rather than innovation.
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This distortion is already visible in Pakistan’s economic data. Over the past three years, Pakistan has received nearly $96 billion in remittances—more than its total merchandise exports during the same period. On paper, this appears as a success story, but in reality, it masks the collapse of industrial competitiveness. Export earnings have failed to expand beyond textiles and a few low-value products, while remittance inflows have artificially sustained consumption and import demand. This gives the illusion of macroeconomic stability while undermining long-term growth potential.
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The consequences are serious. Instead of building productive capacity, remittances are mostly spent on imported goods—cars, electronics, and construction materials—fuelling consumption-driven growth that lacks sustainability. Meanwhile, domestic manufacturing remains trapped in low productivity, and industrial diversification has stalled. The money entering the economy does little to raise savings or investment rates, nor does it spur technological upgrading. In effect, Pakistan is consuming what its workers produce abroad, not what its economy creates at home.
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This trend has also reinforced a psychological dependency. The state now treats remittances as a stabilizing buffer rather than an opportunity for structural reform. Successive governments—regardless of party—have failed to design mechanisms that channel diaspora income into productive ventures. Housing schemes, consumer imports, and short-term fiscal fixes have replaced long-term industrial strategy. The remittance cushion has dulled the urgency of reform, allowing policymakers to postpone difficult decisions on taxation, energy pricing, and export competitiveness.
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Breaking this cycle requires a new national approach. Instead of treating remittances merely as consumption income, Pakistan must reframe them as development capital. This means establishing transparent diaspora investment platforms, incentivizing remitters to invest in small and medium enterprises, and linking remittance flows to export-oriented industries. Countries like the Philippines, India, and Bangladesh have shown that with proper financial instruments—such as diaspora bonds and special investment funds—remittances can become a source of productive investment rather than just household expenditure.
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To achieve this, structural reforms must target the roots of Pakistan’s economic stagnation: weak governance, energy inefficiency, and an uncompetitive business climate. Expanding industrial zones, improving logistics, and reforming tax structures can make the domestic economy more attractive for both foreign investors and overseas Pakistanis. If properly channelled, remittance inflows could finance innovation, enhance productivity, and reduce dependence on foreign loans and IMF bailouts.
Ultimately, remittances are a lifeline—but not a development strategy. They sustain households, not industries; they finance consumption, not transformation. Unless Pakistan learns to convert these inflows into a foundation for export-led, value-added growth, it will remain trapped in a fragile cycle of external dependency. True resilience will come not from money sent home, but from wealth created within.
