Remittances drop by 32%

Gap in interbank, open market dollar rates encourages use of hawala system.


Farhan Zaheer October 10, 2011

KARACHI: Worker remittances have declined by a massive 32% to $890 million in September 2011 compared to $1,310 million in August 2011.

Data released by the State Bank of Pakistan (SBP) on Monday showed remittances figures of September had also declined 19% from the monthly average of $1,099 million over the last three months (Jul-Sep FY 2012).

Muzammil Aslam, economist at JS Global Capital Limited said that the decline of 32 % in remittances is significant and it should be a cause of concern for government.

There are various reasons for this massive decline and some of these could be the Pak-US tense relations that heightened in September and Eid holidays that reduced the working days last month.

“But most importantly it was the three rupee difference between the interbank and open market rates, especially in the last weeks of September, that encouraged people to send remittances through hawala (illegal gateways of sending money other than banks),”  he said.

Amid Pak-US tensions in bilateral relations last month, dollar in open market hit Rs91, up Rs3 compared to the interbank rates that were hovering in range of Rs87.50.

When people saw that they could get more dollars from open market compared to interbank rates, they prefer sending remittances through illegal channels and this has caused a massive decline in September figures, Aslam said.

This situation also underlines the fact that remittances through hawala connections are still coming in and huge amounts of money are still finding its way through illegal channels instead of banking channels.

“Government should take notice of this situation and completely stop remittances coming in Pakistan through hawala,” he said firmly, “Government must also stabilise interbank and open market rates otherwise this could happen again.”

Standard Capital Securities Head of Research Faisal Shahji said that this decline could have happened because of loss of jobs and declining growth in western hemisphere.

“We have to take this decline in remittances seriously because of the looming economic slowdown in west. A lot of people losing jobs and are coming back to their home countries and this could also affect Pakistani workers in west,” he said.

However, remittances have surged by 25% to $3.3 billion in first quarter (Jul-Sep) of fiscal year (FY12) compared to the corresponding period of last year. The remittances received from all countries of the world showed growth during the first quarter of current fiscal year.

Published in The Express Tribune, October 11th, 2011.

COMMENTS (4)

syed baqar ahsan | 12 years ago | Reply

Greed and lust always over ride national spirit and fear of GOD.The govt and its money managers should develop habit to react quickly to keep spirits of our all beloved Pakistanis abroad.

Shahryar Ahmed | 12 years ago | Reply

It is as correctly put my Mr. Aslam, it is purely due to the interbank & open market Rs-$ spread.

This is indeed frightening for Pakistan as our economic managers have been counting on the steady inflow from workers abroad.

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