Remittances soar 29% to $2.9b

Surge driven by narrowing gap between official and unofficial channels

KARACHI:

Pakistan recorded a significant inflow of workers' remittances amounting to $2.9 billion in November 2024. This represents a remarkable year-on-year (YoY) growth of 29.1% compared to November 2023, highlighting a robust increase in the contributions of overseas Pakistani workers.

According to the State Bank of Pakistan (SBP), cumulatively, workers' remittances for the first five months of the fiscal year (July–November FY25) reached $14.8 billion, reflecting a growth of 33.6% compared to $11.1 billion during the same period of FY24. This notable rise underscores the increasing reliance on remittances as a crucial component of Pakistan's foreign exchange earnings.

"These sustained remittances are most likely driven by a shift towards official channels," said Waqas Ghani Kukaswadia, JS Global analyst, while talking to The Express Tribune. "The recent trend underscores a newfound confidence in the stability of the Pakistani rupee with a narrowing gap between interbank and open-market exchange rates, thanks to tightened foreign exchange regulations."

Topline Director Research Shankar Talreja concurred, saying, "Remittance momentum is strong as the gap between official and unofficial channels has narrowed, encouraging people to use formal channels."

Over the last two years, approximately 800,000 people have gone abroad annually, doubling the previous trend of 400,000. This surge in migration has had a noticeable impact on remittances, he said. In the past, a difference of Rs20 to Rs30 between the interbank market and the open market (or unofficial channels) incentivised people to use unofficial channels, which operate in the shadows without any government guarantee.

However, regulatory changes introduced by the State Bank of Pakistan (SBP), coupled with monetary incentives, have encouraged banks to expand their branch networks and actively market their services. These efforts aim to enhance remittance inflows through proper channels, ensuring greater transparency and reliability.

SBP announced a threefold increase in monetary incentives for exchange companies to encourage higher remittance inflows into the country. The move aimed to bolster Pakistan's foreign exchange reserves by leveraging contributions from non-banking channels.

In FY24, remittances reached $30.25 billion, with exchange companies contributing around $5 billion through official banking channels. The newly revised incentive structure, effective October 1, offers exchange companies up to Rs4 per incremental US dollar of remittances. This includes a base rate of Rs2 per dollar surrendered to SBP-designated banks and additional incentives of Rs3 or Rs4 per dollar for incremental growth, depending on the remittance volume.

"People tend to visit Pakistan during the last months of the year, as it is wedding season. Along with their visits, they also bring remittances, contributing to the inflow of foreign exchange," said Zafar Paracha, Exchange Companies Association of Pakistan (ECAP).

However, certain global factors, such as conflicts in the Middle East and the Syrian revolution, might impact this market. Despite these challenges, remittance flows remain strong.

"The government's multipronged crackdown on unofficial channels of remittance transfer is yielding positive results," Paracha said. "There are three main culprits in the unofficial remittance system that undermine official remittance inflows: the entities facilitating unofficial remittances, known as Hawala Hundi traders; the middlemen in banks; and the individuals receiving money in Pakistan, primarily exporters and importers."

SBP has adopted a comprehensive approach this time by targeting all three groups, rather than focusing solely on unofficial foreign exchange companies, he said. Previously, banks were reluctant to act against their employees to protect their reputation, even though some employees profited by diverting customers to unofficial channels. This decisive action by the SBP aimed to address the root causes of the problem and strengthen official remittance inflows.

The main sources of remittance inflows during November 2024 were Saudi Arabia ($729.2 million), United Arab Emirates ($619.4 million), United Kingdom ($409.9 million), and the United States of America ($288.2 million). These countries continue to be key contributors to Pakistan's remittance inflows, driven by a large diaspora working in these regions.

In terms of monthly flows, remittances for November 2024 amounted to $2.9 billion, reflecting significant YoY growth from $2.3 billion in November 2023. However, monthly inflows for October 2024 were slightly higher at $3.1 billion, showcasing some fluctuation in remittance trends.

"We have seen strong remittance flows from the UAE, with a jump of 50% YoY in November 2024. The country's share during the last two fiscal years was approximately 17.5% and has now increased to 21.2% in the outgoing month, with the major share from the region being contributed by Dubai (77% of the UAE number)," said Kukaswadia.

Finance Minister Muhammad Aurangzeb said last week that the inflow of workers' remittances is expected to hit an all-time high of $35 billion in the current fiscal year 2024–25, compared to $30.25 billion registered in FY24.

A JS Global analyst endorsed the finance minister's projection, saying that if the current monthly run rate of remittances—around $2.95 billion for the first five months of FY25—continues, annual remittances could exceed $35 billion. Last year, the monthly average was $2.52 billion for the same period in FY24.