Remittances expected to hit $43 billion this year, offsetting flood impact, Pakistan tells IMF

Pakistan has informed the International Monetary Fund (IMF) that remittances are projected to reach $43 billion in the current fiscal year, significantly offsetting the economic impact of recent floods. The government’s assessment suggests that increased remittance inflows will help maintain the current account deficit in check despite setbacks in exports and the agricultural sector caused by the floods, according to a news report. 

The rise in remittances is attributed to several factors, including the impact of the floods, which have driven an increased inflows from Pakistani expatriates, especially from regions severely impacted by the floods. Nearly half of Pakistan’s overseas workers come from flood-affected districts in Punjab, and the government believes this could contribute an additional $2 billion in remittances this year.

The government’s macroeconomic assessment shared with the IMF indicates that Pakistan’s economy remains resilient, with GDP growth projected to be between 3.7% and 4%, despite the devastating floods that affected millions of acres of farmland. The IMF’s review acknowledged that the floods had minimal impact on tax revenues, further supported by strong remittance flows and fiscal measures.

While exports are expected to drop by $1 billion to $34.2 billion due to flood damage to agriculture and industry, the country’s imports are projected to remain high at $65 billion, driven by increased cotton requirements and changes in regulatory duties. 

However, the government reassured that despite challenges, the current account deficit is expected to remain under control, thanks to the uptick in remittances.

In a related development, the IMF also highlighted the need for Pakistan to make progress on key governance and corruption reforms, particularly in the publication of the Governance and Corruption Diagnostic Assessment report, which is expected to be released soon.

Furthermore, despite the impacts of the floods, inflation is expected to remain under control, with projections placing it at 7%. Authorities are confident that the stabilizing effect of remittances and the relatively stable exchange rate will help keep inflation within manageable limits.

The Finance Ministry’s latest economic outlook states that the country’s economy has continued its stabilization trajectory, supported by improvements in large-scale manufacturing and controlled fiscal imbalances, despite the challenges posed by the floods. 

The outlook also notes that disruptions in food supply chains may lead to temporary price increases, but inflation is expected to remain contained in the medium term.