Pakistan’s remittances drop by 19% to $2bn in July

According to data released by the central bank on Thursday, remittances to Pakistan fell 19.3% year on year to $2 billion in the first month of the current fiscal year.

Meanwhile, remittance inflows have also decreased by 7.3% month on month, according to The News. The country received $2.2 billion in remittances from Pakistanis living abroad in July.

Last month, the majority of remittances came from Saudi Arabia ($486.7 million), the United Arab Emirates ($315.1 million), the United Kingdom ($305.7 million), and the United States of America ($238.1 million).

Analysts predicted a drop in remittances in July, but more inflows following Eid ul Adha in June, as Pakistani expatriates sent more money home to buy sacrificial animals.

Furthermore, it appears that remittance inflows were diverted to the grey market because the exchange rate for dollars was better there.

“In my view as this was the month after Eid ul Adha, therefore flows were dry. Some Pakistanis are using unofficial channels for the transfer of money,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

“Persistent devaluation is discouraging investment by overseas Pakistanis,” Tariq added.

The remittance statistics were released after the International Monetary Fund (IMF) last month approved a new $3 billion bailout for the country’s faltering economy, which was dangerously close to defaulting on its debt.

At a monetary policy briefing last month, the governor of the State Bank of Pakistan, Jameel Ahmad, stated that the SBP is ensuring that the average difference between the interbank and open market exchange rates does not exceed 1.25%, as well as any other conditions outlined in the agreement with the IMF.

“The level to which the remittances have dropped is worrisome. There is certainly an element of grey channels offering higher rates,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

“SBP has also proposed certain changes in incentive schemes to attract more remittances like increasing the reimbursement rate to Saudi Riyal 30/$100 which is a 50% increase,” Rauf said, He believes the SBP’s efforts and the narrow gap between the official US dollar rate and grey channels would be critical in determining remittances trajectory.

According to the SBP’s most recent monetary policy statement, the current account deficit in fiscal year 2024 will be in the range of 0.5 to 1.5% of GDP. This assessment considers the impact of changing domestic and global economic conditions.

The SBP anticipates that the current outlook for global commodity prices, combined with a moderate domestic economic recovery, will keep imports in a range.

“On the financing side, the prospects of multilateral and bilateral inflows have considerably improved after the IMF stand-by arrangement,” it said.

“This is important in the context of building external buffers and meeting near-term external financing needs. Further, the market-determined exchange rate will continue to serve as the first line of defence against external shocks and support reserve build-up,” it added.