Gulf Crisis May Cost Pakistan Billions of Dollars in Remittances

The early celebrations over the increase in remittances to Pakistan in the first two months of this year proved short-lived following the US attack on Iran. Now, there are fears of the remittance inflow reducing by $3–4 billion as well as disrupting overseas employment.

Pakistan’s economic stability appears to be linked with the Middle East, as the region hosts over 6 million Pakistani workers and contributes 54 percent of the total remittances the country receives. Touted as a safe wealth hub, the Middle East attracts about 700,000-800,000 new Pakistani migrants every year. 

However, the US-Iran war has disturbed the dynamics, creating uncertainty around migration flows and remittance inflows.

According to the Pakistan Institute of Development Economics (PIDE), there will be no fresh migration of Pakistani workers to the Gulf this year, even as half a million may return to Pakistan amid the prolonging conflict. “The disruption may cause an adverse impact on remittances from $3-4 billion annually,” the Islamabad-based institute said in its recent report, highlighting the serious implications on the domestic labour market.

The negative impact of the US-Iran war on remittances to Pakistan has been predicted by a few experts in the country. Economist and former adviser to the Ministry of Finance Dr Khaqan Najeeb said the medium-term risks exist as the Gulf crisis would be detrimental to the expatriate employment of Pakistani workers, thus affecting remittance inflow.

Shahid Anwar, senior director at the Institute of Cost and Management Accountants of Pakistan, warned of bigger socio-economic problems. “A 15 percent decline would mean a shortfall of around USD 3 billion, widening the current account deficit and putting additional pressure on the rupee,” he said. “Families relying on these funds could face tighter budgets, delayed education, and reduced access to healthcare.”

In the Monetary Policy Statement, the State Bank of Pakistan (SBP), the central bank of the country, said that the intensity and duration of the Middle East conflict would determine the magnitude of the impact on the economy.

Underscoring the importance of the workers’ remittances to stabilise the trade deficit, the SBP acknowledged that the external environment had become “more challenging” and emphasised on “the timely realisation of planned official inflows.”

The significance of the remittance for Pakistan can be gauged from the fact that they generated more foreign exchange than exports. The weakened economic activities in the Gulf countries would eventually lead to lower remittances in Pakistan, said Karachi-based Insight Securities. “The security and stability perception of these countries has taken a hit amid tensions involving the United States, Israel, and Iran, the effects of which may take time to dissipate,” it said.

Remittance plays a major role in Pakistan’s economy as it accounted for about 10 percent of the country’s GDP in 2024, according to the World Bank. And the country relies heavily on the remittances to reduced the widening trade deficit. Pakistan received USD 3.3 billion in remittance in February this year, of which $696.2 million came from the UAE and USD 685.5 million from Saudi Arabia. A significant amount came from Qatar, Oman, Kuwait and Bahrain as well.

Interestingly, the work opportunities in the Middle East accommodate over a third of the total new entrants to Pakistan’s workforce each year. “Pakistan heavily relies on overseas migration for the employment of its large workforce,” reads the PIDE report. “Remittances serve as a critical lifeline for millions of families, sustaining essential expenditures on education, health, and entrepreneurial activities. 

The high emigrant districts have a spillover effect of remittances on the local economy.”

Pakistan’s economy is currently going through reforms, backed by the International Monetary Fund (IMF). Against such a backdrop, reduced remittance inflows as the Gulf conflict prolongs, coupled with the high priced fuel-led inflation will heighten uncertainty and instability.

 Anwar said “This crisis underscores how closely Pakistan’s economic resilience depends on Gulf stability. Expanding labour markets beyond the Gulf and safeguarding formal remittance channels are more critical than ever.”Remittance