Pakistan’s remittance mirage
Pakistan’s recent brush with macroeconomic stability looks impressive, until one inspects the scaffolding. The economy is being held up not by productivity, exports, or investment, but by an extraordinary and historically anomalous surge in workers’ remittances.These inflows are now brushing up against 9 to 10 percent of GDP, placing Pakistan among the most remittance-dependent large economies on record. Bangladesh, often cited as a peer success story, sits closer to 6 percent, while India, with its vast diaspora, is around 4 percent. This is not diversification. It is concentration risk on a grand scale. More than half of these inflows originate in the Gulf, a region hardly known for geopolitical calm or cyclical stability.In 2025, remittances exceeded $40 billion, roughly equal to the combined value of goods and services exports and comfortably above goods exports alone, by roughly a quarter. Exports, meanwhile, remain stuck below their FY22 highs. Over the past two years, remittances have surged by more than 40 percent, while exports have gone nowhere. This is not an export-led recovery. It is a transfer-fueled one.To be sure, remittances have played a critical stabilizing role. They have plugged balance-of-payments gaps, supported the exchange rate, and powered a modest cyclical rebound. Large-scale manufacturing has posted eye-catching growth rates, reaching double digits in late 2025 and averaging around 6 percent in early FY26. This has prompted the State Bank to lift its FY26 growth forecast above 4 percent.But this rebound is more illusion than renaissance. Growth is being driven by revived domestic demand, not by competitiveness or external traction. Export-oriented sectors continue to underperform. Autos and cement have recovered, but from deeply depressed levels and well short of past peaks. The telltale signs remain: a negative output gap, high unemployment, and chronically underutilized capacity.Investment, the true engine of durable growth, has been conspicuously missing. There has been little progress on export upgrading or credible import substitution. Much of the recent “feel-good” momentum in domestic sectors reflects administrative fixes, such as crackdowns on smuggling via Afghanistan and Iran, rather than productivity gains or structural reform.Macro stability has been engineered the hard way: through punishing fiscal tightening, elevated taxes, and prolonged inflation that has crushed real incomes. For most households, purchasing power remains below 2019 levels. Consumption has revived largely because remittances cushions recipient families, not because the economy has healed.The recovery is sharply K-shaped. Upper-middle and high-income households are snapping up SUVs and crossovers, with volumes soaring. Mass-market vehicles, motorcycles, and other staples lag in the recent growth momentum. Tractors, a reliable proxy for rural health, tell the bleakest story. Sales are down roughly 26 percent in the first half of FY26 and stand at barely half their 2022 levels. Agriculture is under strain from poor pricing policies, shrinking rice exports, border disruptions, and falling farm incomes.Outside a narrow band of services exports, ICT and business process outsourcing may reach $6 billion in FY26, but the cupboard is thin. Textiles are squeezed by weak domestic competitiveness and external headwinds, including US tariffs and intensifying competition in Europe. Even higher-end segments face pressure as trade realignments, including a potential EU–India deal, reshape market access.Geopolitics only sharpens the vulnerability. Pakistan’s strategic relevance attracts attention, but it also magnifies risk, especially when roughly a quarter of remittances come from Saudi Arabia and the bulk from an increasingly volatile Middle East.Remittances have bought Pakistan time, not transformation. They have delayed the next crisis, not removed it. Unless this window is used to rebuild exports, revive investment, and restore productivity growth, today’s stability will look less like a turning point and more like an intermission.Copyright Business Recorder, 2026
