Remittance growth cushions Pakistan expanding trade gap

October 22, 2024 (MLN): Pakistan's trade deficit widened for the third straight quarter, fueled by a surge in imports—indicating a recovery in economic activity.

The deficit on trade in goods expanded 26% to $6.7 billion in the first quarter of fiscal year 2024-25. The shortfall was $23.5bn in the 12 months through September, State Bank of Pakistan reported Monday.

Since the second half of FY24, the trade deficit has continued to expand. Both imports and exports are rising, with imports increasing at a faster pace due to a relaxation in import restrictions and recovering domestic economic activity.

Goods imports rose by 15.7% to $14.2bn between July and September 2024, taking the twelve month rolling imports to $55bn.

Exports of goods increased by 7.8% to $7.5bn during Q1 FY25, taking the twelve month tally to $31.5bn.

Meanwhile, robust growth in remittances has allowed the country to sustain modest growth.

Pakistan’s current account posted a marginal deficit of $98 million in Q1 FY25, down 92% from the $1.2bn deficit in the same period last year, thanks in no small part to remittances.

Workers' remittances increased by 38.8% to $8.8bn in Q1 FY25, compared to $6.3bn in SPLY.

Importantly, this growth was broad-based, with inflows from all major regions recording double-digit growth.

Domestically, policy measures aimed at reducing the kerb premium, along with various incentive schemes, have facilitated increased remittance inflows through official channels.

Meanwhile, a recent study by Asian Development Bank suggests that higher inflation in Pakistan has been an important factor leading to an increase in remittances as dependents in the host country need more money to cope with the rising cost of living.

On the global front, stronger labor markets along with declining inflation in US and Europe, resulted in improved real wages, thereby increasing remittance inflows from these economies.

In case of GCC countries, the main factor was robust employment opportunities in Saudi mega-projects, as indicated by increased number of emigrants to GCC.

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