Economic Concerns: Pakistan’s Remittances Decline 19% to $2 Billion in July
KARACHI: Remittances to Pakistan have shown a 19.3% year-on-year decline, reaching $2 billion in the first month of the current fiscal year, as per data released by the central bank on Thursday.
Additionally, remittance inflows have also experienced a 7.3% reduction on a month-on-month basis, as reported by The News. In the month of July, the country received $2.2 billion in remittances from overseas Pakistanis.
The major sources of remittance inflow last month were Saudi Arabia ($486.7 million), the United Arab Emirates ($315.1 million), the United Kingdom ($305.7 million), and the United States of America ($238.1 million).
Financial analysts had anticipated a drop in remittances for July. This decrease is thought to be linked to the aftermath of Eid ul Adha in June, as Pakistani expatriates often send funds home to purchase sacrificial animals during that period.
Moreover, it appears that some remittance inflows might have shifted to the informal market due to more favorable exchange rates for dollars there.
Samiullah Tariq, the head of research at Pak-Kuwait Investment Company, explained, “In my view, as this was the month after Eid ul Adha, therefore flows were dry. Some Pakistanis are using unofficial channels for the transfer of money.”
The persistent devaluation of the Pakistani rupee is also being seen as a factor discouraging investment by overseas Pakistanis.
This release of remittance statistics follows the International Monetary Fund’s (IMF) recent approval of a new $3 billion bailout package for Pakistan’s struggling economy, which was teetering on the brink of defaulting on its debt.
Jameel Ahmad, the governor of the State Bank of Pakistan, stated at a monetary policy briefing last month that the SBP is committed to ensuring compliance with the requirement that the average difference between the interbank and open market exchange rates does not exceed 1.25%, along with any other conditions outlined in the agreement with the IMF.
“The extent of the drop in remittances is concerning. There is definitely an element of unofficial channels offering higher rates,” remarked Fahad Rauf, the head of research at Ismail Iqbal Securities.
Rauf also mentioned that the SBP has proposed changes in incentive schemes to attract more remittances, such as increasing the reimbursement rate to SAR 30/$100, which is a 50% increase. He believes that the SBP’s efforts, along with the narrow gap between the official US dollar rate and unofficial channels, will play a crucial role in determining the trajectory of remittances.
The SBP’s latest monetary policy statement anticipates the current account deficit to range from 0.5% to 1.5% of gross domestic product in fiscal year 2024. This assessment takes into consideration evolving domestic and global economic conditions.
The SBP expects that the current outlook for global commodity prices, along with a modest domestic economic recovery, will keep imports within a certain range.
“Regarding financing, the prospects of multilateral and bilateral inflows have significantly improved after the IMF stand-by arrangement,” the statement noted.
“This is vital in the context of building external buffers and meeting short-term external financing requirements. Furthermore, the market-determined exchange rate will continue to act as the primary line of defense against external shocks and support the accumulation of reserves,” it concluded.
