In a historic development, Pakistan hit an all-time high inflow of workers' remittances sent home by non-residents at $3.24 billion in May 2024 on Friday. This surge suggests that the balance of the current account would remain in surplus for the fourth month in a row.
According to State Bank of Pakistan's (SBP) data, the inward remittances soared 54% to the record high level in the month under review ahead of Eid Ul Azha falling on June 17 compared to $2.10 billion in the same month of May of the last year.
Financial experts noted that inflows were notably higher than their expectations. It is pertinent to note that the last time Pakistan received the highest remittances was in April 2022 at $3.12 billion
The outstanding growth in the receipts gave a strong expectation that the cumulative current account deficit would turn into surplus for the first 11-month ending May 2024 of current fiscal year compared to nomin.al deficit of $202 million in the first 10-month. This increased inflows can also help stabilise the country's foreign exchange reserves and support the rupee to remain strong against the US dollar in the short-run.
The inflow surged 15% in the month compared to the prior month of April, with the workers' remittances growing 7.7% cumulatively in the first 11-month of FY24, settling at $27.09 billion compared to $25.15 billion in the same period of the last fiscal year.
Shahid Ali Habib, CEO of Arif Habib Limited, said "with these inflows, it looks Pakistan will record a current account surplus yet gain in May 2024."
He attributed the huge influx of inward remittances to Eid, as expatriates send higher funds to their family members in homeland to buy sacrificial animals and cope with elevated inflation on the festival.
The months-long stability in rupee-dollar parity at around Rs278/$ and narrowing down the gap between the formal and the informal currency market rates (rupee-dollar exchange rate) allowed non-resident Pakistanis to dispatch the funds via formal channels.
A central bank official said the other day they were offering significant incentives to banks and exchange companies in face of margins to bring maximum possible inflows from overseas Pakistanis to the homeland. Additionally, the recent caretaker government launched a crackdown against illegal currency traders like hundi-hawala operators in bordering areas, crushing the black currency markets and wiping out informal traders. The cleanup operation encouraged expatriates to dispatch the remittances via official channels, thereby surging the inflows in the documented economy.
Topline Research said the inflows were better than its expectation as confidence of Pakistani diaspora on the domestic economy is on the rise ahead the country secures the next International Monetary Fund (IMF) loan program in the near future.
Alongside the Eid related inflows (seasonality), the higher remittances in May 2024 and cumulatively in the first 11-month, can also be attributed to significantly higher number of Pakistanis immigrated to other countries in last two years (2022-2023) at an average of 850,000 people compared to average of 323,000 people between 2017-2021.
Revising its projections, the research house anticipates full-year inflows to grow by 8-10%, rising to $29.5 billion to $30 billion in FY24. Earlier, IMF and Topline Research both had estimated the remittances at $28 billion in the outgoing fiscal year ending June 30, 2024.
Country-wise remittances
According to the central bank’s data breakdown, remittances grew 56% from Saudi Arabia to $819 million in May compared to $524 million in the same month of the last year. Inflows from the United Arab Emirates (UAE) doubled to $668 million in the month compared to $336 million in the corresponding month of the previous year.
Overseas Pakistanis dispatched $473 million remittances from the UK, surging by 54% in the month compared to $306 million in the same month of the last year.
Meanwhile, Pakistani expatriates based in the US sent remarkable $360 million remittances, surging by 40% compared to $257 million in May 2023. They repatriated $340 million in remittances to Pakistan from European Union (EU) countries in May 2024, growing by 36% compared to $249 million in the same month of the last year.
Highlight
The government’s cleanup operation encouraged expatriates to dispatch the remittances via official channels, thereby surging the inflows in the documented economy
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