Brain drain is saving our economy
Remittances to the rescue
Leaving the country for good? Good. Just make sure to use legal routes when sending back remittances—it could end up being the difference between Pakistan achieving relative stability or plummeting into economic default.
Why are remittances so important for Pakistan? Well, for any country to be even remotely functional, it needs to earn roughly as many dollars as it spends. Unfortunately, as covered previously, we earn far fewer dollars (via exports) than we spend (via imports). To put it in numbers, our annual import bill is about $30 billion more than our exports. So where are these extra dollars coming from?
Here’s a clue: over the past year, we received $30.3 billion worth of remittances from Pakistanis working abroad. That’s as much as we earned from our exports last year ($30.7 billion), and almost exactly matches the gap between our exports and imports. Thus, our remittances are singlehandedly ensuring that Pakistan’s dollar equation adds up, i.e., the amount of dollars we earn from exports + remittances = the dollars we need for our import bill.
And the “good” times are only set to get better. Over the first four months of this fiscal year (2024-25), remittances rose 35% compared to the same time last year. If trends hold, Pakistan will witness its highest ever inflow of remittances this year, to the tune of ~$35 billion, creating further breathing space for our tight finances.
It cannot be emphasised enough how lucky we are to have these remittance inflows. Most developing countries with small-ish populations do not have this cushion. They have to scrap for each dollar in the export market, fight to attract foreign investment, and cultivate their reputation as a tourist destination.
Us? Our exports are stagnant, foreign investment is virtually non-existent, and the less said about our tourism reputation the better. And yet, we continue to chug along—thanks in large part to our booming population and busted economy which forces ever increasing numbers of Pakistanis to seek opportunities abroad. According to official statistics, 3.3 million people left the country in the last five years. Many more will leave in the coming years, further boosting our remittance potential.
But, there’s a catch. Not all dollars are economically equal. On our country’s balance sheet, a dollar earned from exports and a dollar transferred via remittances may look exactly the same. But, in economic terms, their impact differs greatly.
A dollar earned from exports is a sign of a thriving economy—it means that there is a firm out there manufacturing internationally competitive products, creating opportunities for ancillary firms, providing employment for local workers, and contributing to the country’s tax base.
Dollars earned from remittances don’t carry any of these benefits. If anything, they symbolize a failing economy—one where people saw such little hope that they had no choice but to abandon their families and seek economic opportunities abroad. And now that they are abroad, they’re being forced to send back money for “ghar kharch” because their families are still struggling for survival in a moribund economy.
This brain drain aspect of remittances cannot be ignored, even if the picture is more nuanced than at first glance. Yes, losing highly skilled labour isn’t ideal. But most of our departing countrymen don’t exactly fit that category.
Of the three million Pakistanis who moved abroad in the past five years, 250,000 went to Oman, 700,000 went to the UAE, and a whopping 1.8 million relocated to Saudi. By contrast, only 33,000 Pakistanis moved to the UK in this time, and a miniscule 4,000 to the US. Pakistan's typical migrant looks less like a doctor in Dallas, and more like a driver in Dubai.
This is backed up by research from the Pakistan Institute of Development Economics, which found that the majority of Pakistanis who emigrate each year tend to fall in the category of “labourer” or “driver”. For many of these people, emigrating and working abroad IS their route to becoming more “skilled”, learning trades and accumulating wealth that they never would have been able to in their home country. And multiple studies find that the earnings they send back reduce poverty and improve their family’s health and education prospects. So it's not all doom and gloom.
A more pressing danger is that our ruling elite starts to view these remittances as an excuse to not change our outdated economic model. Why bother putting in the work to enhance our export base, when we can earn dollars via remittances for “free”?
This is the “Dutch disease” dilemma outlined by economist Atif Mian in a recent talk: we can either view remittances as a lucky windfall that provide us some cushion as we pursue serious economic reforms, or consider them a licence to continue on our current trajectory—where living standards erode with each passing year and the best-case scenario is narrowly avoiding total economic meltdown.
The choice is ours.
What I’m reading this week:
Pakistan tests secret China-like ‘firewall’ to tighten online surveillance (Abid Hussain, Al Jazeera)
What's happening in Pakistan’s textile sector? (Meiryum Ali, Dawn News)
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Interesting take. Remittances will keep the economy afloat but focusing on creating exports that are competitive in the international market will be beneficial to the economy as a whole in the long run.