UAE-driven remittance surge pushes Pakistan’s foreign reserves to 39-month high

Dubai: Pakistan’s foreign exchange reserves soared to a 39-month high of $20.03 billion in July, fuelled by a sharp increase in remittances, particularly from the United Arab Emirates, according to data released by the State Bank of Pakistan (SBP).

The SBP’s holdings alone surged by $1.77 billion during the last week, reaching $14.5 billion, the highest level since March 2022. Commercial banks held an additional $5.53 billion.

Record remittance inflow

A key driver behind the build-up has been record remittance inflows, with cumulative workers’ remittances rising to $34.9 billion during July—May FY2025, marking a 28.8% increase from the same period last year. In May alone, remittances totalled $3.7 billion, up nearly 14% year-on-year.

The UAE emerged as a standout contributor, sending $754.2 million during the July—May period, a staggering 45.7% increase from the previous year. Dubai accounted for $567.2 million of that figure, underscoring the emirate’s growing role in Pakistan’s external financing mix.

“Workers’ remittances reflect robust growth of 16% month-on-month and 13.7% year-on-year, signalling sustained confidence of overseas Pakistanis in formal banking channels,” Ali Najib, Deputy Head of Trading at Arif Habib Limited (AHL), told Pakistani media.

External stability on the rise

The sharp improvement in reserves signals a turnaround from the crisis levels of early 2023, when SBP reserves had plunged to just $2.9 billion amid acute balance of payments stress.

The recovery began in mid-2023 and has accelerated in recent months on the back of rising remittances, import restrictions, and proactive reserve management.

AKD Securities estimates Pakistan’s current import cover at 2.71 months, a significant improvement in external stability.

Banks reportedly offered premium rates to attract inflows from overseas Pakistanis, capitalising on per-transaction incentives. However, the government is now considering rolling back these incentives, which could impact remittance volumes if not managed carefully.

Currency dynamics

Despite the record reserves, the Pakistani rupee continued to face pressure. Last week, it closed at 284.56 per dollar in the interbank market, down 0.03% from the previous day. In the open market, the exchange rate touched 287.50 as dollar demand remained high amid constrained supply for imports.

Economists believe that if remittance momentum holds, especially from the Gulf region, and Pakistan maintains its IMF program trajectory, SBP reserves could climb further, potentially exceeding $20 billion in FY26.

Pakistan’s ability to secure commercial loans without major difficulty in FY25 was attributed to confidence in its IMF-backed reforms, which are expected to continue supporting foreign financing in the coming year.

Major remittance contributors

Saudi Arabia: $913.9 million

UAE: $754.2 million

UK: $588.1 million

US: Significant contributor (exact figure not specified)

EU (28.1% growth): Italy led with $118.2 million

Emerging markets: South Africa (74%), Ireland (53.1%), Malaysia (40.4%)