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Remittances fall in July-Aug as Pakistani expats prefer illegal channels

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1 year ago

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  • Pakistan receives $4.12bn in two months. 
  • Remittances fall 24% YoY to $2.09bn in August. 
  • Decline mainly due to large currency gap, say analysts. 

KARACHI: The workers’ remittances to Pakistan steeply declined by 22% in July-August as the expatriate workers chose informal channels to send funds amid a widening gap between official and unofficial exchange rates, The News reported Tuesday. 

The country received $4.12 billion in remittances — a key source of foreign exchange — from July to August, down from $5.29 billion in the same period last year, according to data from the State Bank of Pakistan (SBP). 

In August alone, remittances fell 24% year-on-year to $2.09 billion but rose 3.1% month-on-month.

Analysts said the decline was mainly due to the large difference between the interbank and grey market rates, which reached as high as 10% last month, encouraging many expatriate Pakistanis to use unregulated methods such as hawala and hundi to transfer funds.

Another factor was a drop in inflows from Roshan digital accounts, a scheme launched to attract foreign currency deposits from expats.

Between July and August FY2024, remittances from Saudi Arabia decreased by 23% to $977 million. Inflows from the United Arab Emirates (UAE) fell by 37% to $624 million and the United Kingdom by 18% to $638 million.

In July-August FY2024, Pakistanis residing in the United States (US) remitted home $504 million, down from $545 million the previous year.

“The main reason for the fall in remittances compared to last year is the large disparity between interbank, open market and grey market rates,” said Tahir Abbas, head of research at Arif Habib Limited. 

“While remittances transferred through interbank declined, the amount sent through unauthorized routes surged.”

Abbas said that a staff-level agreement on policies to conclude the combined 7th and 8th reviews of the Extended Fund Facility (EEF) between the International Monetary Fund (IMF) and the Pakistani authorities had resulted in an appreciation of the rupee and a narrowing of the interbank and black market rates. 

That resulted in the country receiving $2.7 billion in remittances in August 2022, a significant amount.

He explained that after the IMF’s board approved the disbursement of over $1.1 billion to the cash-strapped economy in August of last year, the rupee strengthened and appreciated from 239 to 219 against the dollar in the interbank market. As a result, there was a high flow of remittances during that time as Pakistani employees abroad sent home more money through formal means.

Abbas expects an improvement in remittances in September as the rupee strengthens following the government’s recent crackdown on illegal dollar traders, hoarders, and black marketers.

The rupee gained 2% against the dollar over the past four trading days, closing at 301.16 in the interbank market on Monday. The gap between the interbank and open market has narrowed from peaks of over 8% due to regulatory measures and enforcement from law authorities.

Fahad Rauf, head of research at Ismail Iqbal Securities, said remittances should pick up now that the interbank and grey market gap has been reduced. For Pakistan, which has been grappling with high inflation, dwindling foreign exchange reserves, a weak currency and a deteriorating balance of payments position, the slump in remittances is not a good sign.

The country’s reserves held by the central bank dropped by $70 million to $7.8 billion in the week ending September 1. The country also saw a current account deficit of $809 million in July against a surplus of $504 million in June.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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