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Remittances fall in July-Aug as Pakistani expats prefer illegal channels

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12 months ago

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  • Pakistan receives $4.12bn in two months. 
  • Remittances fall 24% YoY to $2.09bn in August. 
  • Decline mainly due to large currency gap, say analysts. 

KARACHI: The workers’ remittances to Pakistan steeply declined by 22% in July-August as the expatriate workers chose informal channels to send funds amid a widening gap between official and unofficial exchange rates, The News reported Tuesday. 

The country received $4.12 billion in remittances — a key source of foreign exchange — from July to August, down from $5.29 billion in the same period last year, according to data from the State Bank of Pakistan (SBP). 

In August alone, remittances fell 24% year-on-year to $2.09 billion but rose 3.1% month-on-month.

Analysts said the decline was mainly due to the large difference between the interbank and grey market rates, which reached as high as 10% last month, encouraging many expatriate Pakistanis to use unregulated methods such as hawala and hundi to transfer funds.

Another factor was a drop in inflows from Roshan digital accounts, a scheme launched to attract foreign currency deposits from expats.

Between July and August FY2024, remittances from Saudi Arabia decreased by 23% to $977 million. Inflows from the United Arab Emirates (UAE) fell by 37% to $624 million and the United Kingdom by 18% to $638 million.

In July-August FY2024, Pakistanis residing in the United States (US) remitted home $504 million, down from $545 million the previous year.

“The main reason for the fall in remittances compared to last year is the large disparity between interbank, open market and grey market rates,” said Tahir Abbas, head of research at Arif Habib Limited. 

“While remittances transferred through interbank declined, the amount sent through unauthorized routes surged.”

Abbas said that a staff-level agreement on policies to conclude the combined 7th and 8th reviews of the Extended Fund Facility (EEF) between the International Monetary Fund (IMF) and the Pakistani authorities had resulted in an appreciation of the rupee and a narrowing of the interbank and black market rates. 

That resulted in the country receiving $2.7 billion in remittances in August 2022, a significant amount.

He explained that after the IMF’s board approved the disbursement of over $1.1 billion to the cash-strapped economy in August of last year, the rupee strengthened and appreciated from 239 to 219 against the dollar in the interbank market. As a result, there was a high flow of remittances during that time as Pakistani employees abroad sent home more money through formal means.

Abbas expects an improvement in remittances in September as the rupee strengthens following the government’s recent crackdown on illegal dollar traders, hoarders, and black marketers.

The rupee gained 2% against the dollar over the past four trading days, closing at 301.16 in the interbank market on Monday. The gap between the interbank and open market has narrowed from peaks of over 8% due to regulatory measures and enforcement from law authorities.

Fahad Rauf, head of research at Ismail Iqbal Securities, said remittances should pick up now that the interbank and grey market gap has been reduced. For Pakistan, which has been grappling with high inflation, dwindling foreign exchange reserves, a weak currency and a deteriorating balance of payments position, the slump in remittances is not a good sign.

The country’s reserves held by the central bank dropped by $70 million to $7.8 billion in the week ending September 1. The country also saw a current account deficit of $809 million in July against a surplus of $504 million in June.

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It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

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In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

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The price of gold in Pakistan has experienced a significant surge.

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3 days ago

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Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

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The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

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4 days ago

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On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

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