In line with market expectations, the flow of workers’ remittances slowed down 13% month-on-month to $2.21 billion in April amid prolonged Eid holidays.
Financial experts, however, considered it a strong number and anticipated that it would help achieve current account surplus for the second consecutive month.
According to the State Bank of Pakistan’s (SBP) data, the remittances hit a seven-month high at $2.53 billion in March 2023. However, inflows dipped 29% in April compared to the all-time high of $3.12 billion reached in the same month of last year.
Cumulatively, in the first 10 months (Jul-Apr) of current fiscal year, the remittances sent home by overseas Pakistanis fell by 13% to $22.74 billion compared to $26.14 billion in the same period of last year.
Talking to The Express Tribune, Ismail Iqbal Securities Head of Research Fahad Rauf said “it’s a strong number of remittances, ie, $2.21 billion for April, considering Pakistan’s economy remained closed for five days (April 21-25) on account of Eid holidays.”
“People could not send remittances during the holidays. Had there been no prolonged break, the remittances would have remained stable around previous month’s level of $2.53 billion,” he said.
JS Global Head of Research Amreen Soorani said in a commentary “with remittances widely surpassing the trade deficit once again, the possibility of current account surplus remains for April 2023.” The trade deficit narrowed by 78% to $829 million in April compared to $3.76 billion in the same month of last year. Earlier, the current account surplus was recorded at $636 million in March 2023.
The lower trade deficit and the current account surplus came at the cost of economic growth, as the government’s administrative control over trade remained in place to manage the low foreign exchange reserves and mitigate the risk of debt default.
Considering the current trend of remittances, Rauf projected full-year inflows in the range of $27 billion to $27.50 billion. Remittances hit an all-time high at $31.27 billion in the previous fiscal year.
He was of the view that remittances could take a small dip to somewhere between $2.20 billion and $2.50 billion in May. Historical data suggests inflows usually drop in the month immediately after Ramazan.
“However, the flow of remittances will again improve in June ahead of Eidul Azha,” he pointed out.
Rauf, however, warned that political turmoil, emerging in the wake of former prime minister Imran Khan’s arrest, may hurt the economy in general and remittances in particular.
If political tensions did not ease, he added, it may mount pressure on the rupee and force overseas Pakistanis to send only a limited amount to their families back home ahead of the return of stability to the rupee-dollar exchange rate.
Pakistani rupee slumped 1.85%, or Rs5.38, and closed at a new all-time low at Rs290.22 against the US dollar in the inter-bank market on Wednesday.
Rauf pointed out that latest reports signaled further delay in revival of the IMF loan programme, adding that the development stood negative for the exchange rate as well as remittances.
He suggested that the government should continue to let market forces determine the exchange rate, which would discourage the flow of remittances via black markets and lead to increased use of legal channels.
Published in The Express Tribune, May 11th, 2023.
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