Remittances hit 27-month low at $2.1b

The remittances sent home by overseas Pakistanis hit a 27-month low at $2.10 billion in November 2022 as many expatriates were believed to have dispatched money back home through informal channels.

The State Bank of Pakistan (SBP) reported on Wednesday that remittances dropped by 14% to $2.10 billion in November 2022 compared to $2.45 billion in the same month of last year. The inflows decreased by 5% compared to the previous month of October 2022.

November is the third consecutive month when remittances have declined, according to the central bank data.

“Remittances of $2.10 billion are the lowest since August 2020,” said Arif Habib Limited Head of Research Tahir Abbas in a short commentary.

The black market offers a significantly higher price for the US dollar at Rs240-250 compared to the interbank market rate of Rs225 to a dollar. This has encouraged many overseas workers to remit funds through the illegal Hawala-Hundi operators.

The drop in remittances may trigger further depreciation of the rupee as demand for the dollar has remained high amid low foreign currency reserves of the State Bank.

In the first five months (Jul-Nov) of the current fiscal year, remittances have dropped by 10% year-on-year to $12 billion, according to the central bank. 

"Remittances have mainly decrease from Saudi Arabia and the United Arab Emirates (UAE)," Ismail Iqbal Securities Head of Research Fahad Rauf pointed out in a brief commentary.

These countries are not encountering significant economic challenges, which indicate that the gap between the official and Hawala-Hundi rates is a major factor behind the slowdown in remittances.”

Saudi Arabia and the UAE have traditionally been the two biggest sources of remittances flow to Pakistan. The fall in remittances from the two oil producing and exporting companies came despite improvement in their economies with the surge 

in international oil prices. Apart from that, the two Gulf states have not laid off people from their job markets, instead more Pakistanis have been hired in recent months.

Data breakdown shows that remittances from Saudi Arabia contracted 20% to $498 million in November 2022 compared to $622 million in the same month of previous year.

Receipts from the UAE decreased by 20% to $378 million compared to $475 million in the corresponding month of last year.

Remittances from the UK dropped by 5% to $299 million compared to $314 million last year. They decreased by 8% from the European Union to $245 million compared to $267 million.

Inflows from the US shrank 6% to $229 million in November 2022 compared to $244 million last year, while from the rest of the world Pakistanis sent home $459 million, down 15% compared to $538 million in the previous year.

Experts were of the view that the government had kept the rupee slightly overvalued against the dollar in the inter-bank market partly to control the soaring inflation fuelled by imports.

This, however, has created an enabling environment for the Hawala-Hundi operators to get reorganised.

Rupee flat

Pakistani currency closed almost flat at Rs224.71 against the US dollar in the inter-bank market on Wednesday, as it inched down by only one paisa (Rs0.01).

The rupee, however, stood at a 10-week low as it had continued to drop almost every day over the past two weeks. A delay in the ninth review of International Monetary Fund’s (IMF) $6.5 billion loan programme has gradually mounted pressure on the rupee.