Remittances Drop 14% to $27B as Illegal Markets Tempt Overseas Pakistanis

Web DeskJuly 11, 2023

Karachi, July 11, 2023 – The previous fiscal year, ending on June 30, 2023, witnessed a substantial slowdown in the inflow of workers’ remittances sent home by overseas Pakistanis, with a staggering decline of 14% amounting to a cumulative $27 billion. The main factor contributing to this decline was the availability of more favorable rupee-dollar exchange rates in illegal markets, diverting remittance flows away from legal channels. This downturn has significantly impacted Pakistan’s foreign exchange reserves, which currently stand at a critical low of $4.4 billion. In response, the government has implemented import controls to ensure the timely repayment of maturing foreign debts.

Read More: The entire debt of the Centre increased by Rs11.13 trillion: SBP

According to the State Bank of Pakistan (SBP), non-resident Pakistanis had set a record-high by dispatching $31.3 billion in remittances during fiscal year 2022.

Despite the overall decline, remittances in June, the final month of FY23, saw a slight improvement of 4%, reaching $2.2 billion compared to the $2.1 billion received in May 2023. Expatriates sent higher funds to their families to celebrate Eidul Azha, which fell in the last week of the month. However, remittances for the month still witnessed a significant 22% decline compared to the same period last year.

Yousuf M. Farooq, former director of research at Topline Securities, explained that “The government’s interventions in the legal currency markets throughout the year kept creating discrepancies in the rupee-dollar exchange rates between legal and illegal markets.”

“The availability of better exchange rates in the illegal hawala-hundi market attracted a section of overseas Pakistanis, resulting in them sending funds through this channel to Pakistan,” he added.

The exchange rate gap widened to approximately Rs30 per dollar during the year, negatively impacting the inflow of workers’ remittances. Farooq noted that the slowdown in remittance inflows was primarily recorded from Middle Eastern countries such as Saudi Arabia and the United Arab Emirates (UAE), where hawala-hundi operators are prevalent. In contrast, inflows remained comparatively better from compliant Western countries such as the United States (US) and the United Kingdom (UK).

Political and economic uncertainties also played a role, as non-residents opted to send only essential amounts to their relatives in Pakistan. These uncertainties may have also contributed to a reduction in investment volumes in the real estate and property sectors this year.

Farooq mentioned that the exchange rate gap narrowed down approximately two to three weeks ago after Pakistan implemented measures to stabilize the domestic currency markets, following the International Monetary Fund (IMF)’s recommendations in order to secure a newly signed $3 billion loan program. While the narrowing of the gap partially helped improve inflows in June, recent speculations suggest that the difference in exchange rates has once again widened to Rs15 per dollar on Monday. This occurred as the domestic currency dropped to Rs305/$ in the hawala-hundi market compared to Rs280/$ in the official interbank market.

The widening gap is speculated to be due to the high demand for foreign exchange to clear import backlogs, surpassing the supply of the greenback in the economy.

Farooq expressed hope that this disparity would not last beyond a brief period after Pakistan signed a staff-level agreement with the IMF for the $3 billion loan program in late June.

“The government has to let market forces determine the exchange rate. This action will help attract higher workers’ remittances in the months to come,” he emphasized.

A market-based exchange rate can bridge the gap between the demand and supply of foreign exchange in the market, improve economic output, enhance export earnings, and boost remittance inflows, Farooq explained. He further stated that stability and subsequent improvement in foreign exchange reserves, following the implementation of the IMF program, would help eliminate illegal currency markets.

Regarding region-wise remittances, the central bank reported that inflows of workers’ remittances slumped by 20.5% to $4.65 billion in FY2023 compared to $5.85 billion in FY22. Remittances sent from Saudi Arabia reduced by 17% to $6.44 billion over the year, while those from the UK dropped by 10% to $4.05 billion. Remittances from the US saw a marginal increase of 0.1% to $3.09 billion, while remittances from other GCC countries declined by 12% to $3.19 billion. Remittances from EU countries decreased by 7% to $3.12 billion.

The decline in remittance inflows raises concerns about the country’s foreign exchange reserves and highlights the need for measures to attract higher remittances and stabilize the economy.

Share This Post

Leave a Reply

Your email address will not be published. Required fields are marked *

News Guru

WEb logo-04 (1)

We strive to bring you the most comprehensive and up-to-date news from reliable sources. Our team of experienced journalists and writers are committed to delivering unbiased and factual news, with the highest levels of professionalism and integrity.

News Guru, 2024 © All Rights Reserved