Workers’ remittances drop 19pc to $2bn in July

KARACHI: Remittances to Pakistan from its citizens working abroad dropped 19.3 percent year-on-year to $2 billion in the first month of this fiscal year, the central bank’s data showed on Thursday.

Remittance inflows decreased by 7.3 percent on a month-on-month basis. In June, the country received $2.2 billion in remittances.

Remittance inflows during July were mainly sourced from Saudi Arabia ($486.7 million), United Arab Emirates ($315.1 million), the United Kingdom ($305.7 million), and the United States of America ($238.1 million) respectively.

The decrease in remittances in July was expected, according to analysts. For Eid ul Azha, Pakistani expatriates sent more cash home to buy sacrificial animals, which contributed to an increase in remittances in June.

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

“In my view as this was the month after Eid ul Azha, therefore flows were dry. Some Pakistanis are using unofficial channels for 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 release of the remittances statistics came after the IMF last month approved a new $3 billion bailout for the faltering economy of the nation, which was dangerously near to defaulting on its debt.

The governor of the State Bank of Pakistan, Jameel Ahmad at the monetary policy briefing last month said that the SBP is making sure it will abide by the requirement that the average difference between the interbank and open market exchange rate does not exceed 1.25 percent, 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 SAR30/USD100 which is a 50 percent increase,” Rauf said, He believes the SBP's efforts and the narrow gap between the official USD rate and grey channels would be critical in determining remittances trajectory.

The SBP, in its latest monetary policy statement, expects the current account deficit to be in the range of 0.5 to 1.5 percent of gross domestic product in FY2024. This assessment takes into account the impact of evolving domestic and global economic conditions. The SBP expects that the current outlook for global commodity prices along with moderate domestic economic recovery will keep the imports range-bound. “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.