The impact of Buna-Raast connectivity
Pakistan stands as the sixth-largest recipient of global remittances, with a remittances-to-GDP ratio of over 7pc.
This translates to approximately $30.3 billion, making remittances the country’s second-largest source of income, trailing only exports, which contribute about 9pc to GDP.
Notably, Pakistan’s remittance-to-GDP ratio surpasses that of neighbouring countries like Bangladesh and India, where it stands at 5.3pc and 3.5pc, respectively.
This substantial inflow is crucial in supporting Pakistan’s balance of payments and providing essential financial support to millions of households, playing a pivotal role in maintaining living standards and facilitating access to education and healthcare.
As remittances consistently outpace other foreign investments, optimising this channel is essential to maintaining economic stability in the country. The majority of
Pakistan’s remittances come from the Arab region, with Saudi Arabia and the United Arab Emirates (UAE) being the largest contributors. In FY24, approximately 58.5pc of total inward remittances came from Saudi Arabia, the UAE, and other Gulf Cooperation Council countries, making the ArabPakistan corridor the largest for remittances into Pakistan.
However, a significant volume of remittances, estimated at over $6bn, flow through informal channels, often due to a more favourable exchange rate and simpler processes in the hawala-hundi system.
Formalising these remittances can play a crucial role in stimulating economic growth and resilience, as well as strengthening the financial sector and providing better protection for both senders and recipients. It will also help to prevent money laundering and increase regulatory oversight, which is critical for economic integrity. Discussions are underway about leveraging Pakistan’s Instant Payment System, Raast, to bridge this gap and realise the potential benefits of formalising remittances.
Raast has already made significant strides in transforming domestic payments, processing over 750 million transactions worth approximately Rs17 trillion within its first two years. This system facilitates real-time transfers between accounts, reducing transaction time to under two seconds. The integration of Raast with Buna, an Arab Monetary Fund-owned network connecting central banks and over 125 financial institutions across 22 Arab countries, promises substantial benefits.
This connectivity will enable real-time payment processing, significant cost reductions, enhanced security, and greater convenience through mobile-based fund transfers. The direct connection between Buna and Raast will streamline cross-border transactions and address some of the most pressing challenges in remittance processing.
The Buna-Raast connectivity is a groundbreaking achievement, as it is the first cross-border instant payment system integration between Pakistan and the Arab region. It draws insights from models like SEPA (Single Euro
Payments Area), FPS (Faster Payments Service), Zelle, CIPS (Cross-Border Interbank Payment System), Swift, and Ripple Net.
These systems exemplify the trend towards faster, more efficient cross-border payments and offer valuable lessons for optimising Buna-Raast connectivity.
By adopting similar principles, the project can enhance transaction speed and reliability, benefiting both senders and beneficiaries. For financial institutions, this integration offers several advantages, including reduced processing time, lower internal costs, improved cash flow management, and enhanced operational efficiency.
By aligning with international standards, this initiative will improve transparency and scalability and will also potentially boost financial inclusion in Pakistan by making remittances more affordable and accessible. In addition to bolstering Pakistan’s foreign exchange reserves, this connectivity is expected to support local businesses and entrepreneurs by providing timely financial support.