Inflows of remittances from Pakistanis working overseas surged in February, rising by 43.5% year on year and 2.3% month on month, to US$845.3m. This took total remittances in the first eight months of 2010/11 to US$6.9bn, up by 21% compared with the year-earlier period. The steady rise in remittance inflows is attributed largely to the ongoing effects of the Pakistan Remittance Initiative, a programme launched by the SBP, the Ministry of Overseas Pakistanis and the finance ministry in 2009 to encourage the inflow of remittances through official, rather than underground channels. An analyst at one of the leading financial groups in Pakistan, BMA Capital, was quoted in an international newspaper, The Express Tribune, as saying that the proportion of remittances coming through illegal channels has declined from around 50% to 30% since the initiative was launched. In recent months the relative stability of the Pakistan rupee against other currencies has also helped to reduce underground transfers of remittances; in 2008-09, when the local currency was depreciating rapidly against the US dollar and other currencies, some overseas Pakistanis may have held back remittances in anticipation of further declines.

However, the ongoing socio-political unrest in the Middle East and North Africa-the source of a significant proportion of remittances to Pakistan-may yet threaten the continued inflow of funds. The SBP flagged this as a risk in its March monetary policy statement. If remittance inflows were to drop substantially, the effect on the current-account balance would be grave as other sources of financial inflows, such as foreign direct and portfolio investment and transfers from bilateral donors, have been weaker than expected. (For example, according to the SBP, in the first half of 2010/11 the amount of money received from external sources for official-budget financing was just PRs48bn (US$560m), compared with a budget estimate of PRs230bn for the full fiscal year.)