Workers’ remittances sent by overseas Pakistanis peaked at a seven-month high, nearing $2.5 billion in October 2023, implying a positive stance for the month’s current account deficit.
The significant appreciation of the rupee during September and October 2023, backed by a robust governmental crackdown on foreign currency smuggling and hoarding, paved the way for increased inflows through official channels.
The State Bank of Pakistan (SBP) revealed a substantial 12% surge in October’s remittances, reaching $2.46 billion compared to the previous month’s figure of $2.20 billion in September 2023. The year-on-year growth reflected a 10% increase, rising from the same month of the previous year, which stood at $2.25 billion.
In the first four months (Jul-Oct) of the current fiscal year (2023-24), total inflows slowed by 13% to $8.79 billion, down from $10.15 billion in the corresponding period last year.
Speaking to The Express Tribune, Tahir Abbas, Head of Research at Arif Habib Limited, pointed out that the most significant surge in remittances came from Middle Eastern countries, predominantly Saudi Arabia and the United Arab Emirates. These nations are historically significant sources of remittances but were plagued by illegal hawala-hundi operations. The crackdown on these activities in Pakistan and its bordering regions with neighbouring countries broke the illicit trade links, facilitating increased official channel inflows in October.
The crackdown not only resulted in an 11% appreciation of the rupee but also contributed to a three-month high of nearly Rs277 against the US dollar. Combined with the eradication of black markets, this encouraged overseas Pakistanis to send funds officially to their families in Pakistan to take advantage of the favourable exchange rates.
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“The rupee appreciation allowed expatriates to send the maximum funds to their family members in Pakistan to benefit from the appreciation—by converting from US dollar and other foreign currencies into rupees,” said Abbas, adding that, “The end of the rally was strongly believed to witness some correction in the rupee-dollar parity, which is currently underway.”
He further highlighted that the substantial growth in remittance inflows would assist in maintaining the current account deficit within the range of $100-150 million in October. Some analysts are optimistic that healthy inflows may reverse the current account from a deficit to a surplus after three months of deficit in FY24.
Abbas emphasised the pivotal role of workers’ remittances in the Pakistani economy, especially in the context of low export earnings and minimal foreign direct investment. These inflows aid in stabilising the country’s foreign exchange reserves held by the SBP, mitigating depletion during periods of outflows for foreign debt repayments.
Anticipating a monthly remittance range between $2.2 billion to $2.4 billion for the remaining months of the year, Abbas foresees seasonal spikes in March and June, ranging from $2.6 billion to $2.7 billion, driven by Ramazan and Eid factors.
Estimated full-year inflows may range around $28 billion to $28.5 billion in FY23, slightly lower than the previous fiscal year.
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Abbas stressed the importance of the government’s vigilant approach to curbing illegal currency traders and black markets to sustain high official channel inflows.
Conversations in the market indicate the resurgence of illegal currency traders and black markets in Peshawar, a border area with Afghanistan. Currency dealers have alerted authorities about these developments, hoping for prompt action.
Region-wise inflows
The breakdown of the data suggests that the workers’ remittances sent home by overseas Pakistanis from Saudi Arabia grew by 15%, reaching $617 million in October compared to $538 million in September.
The inflows surged by 19% from the UAE to $474 million in the month compared to $400 million in the previous month.
Receipts from the UK increased by 6% to $330 million compared to $311 million. Inflows from EU countries surged by 10% to $298 million.
They grew by 7% to $283 million from the US.
The inflows from other countries increased by 8% to $461 million in October compared to $525 million in the previous month of September 2023.
Published in The Express Tribune, November 11th, 2023.
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