Remittances hit record $3.2bn in May as Eid boosts inflows

KARACHI: Remittances to Pakistan hit a record high in May, boosted by an increase in funds sent by overseas workers to their families in the country ahead of Eidul Azha.

The State Bank of Pakistan reported on Friday that remittances in May totaled $3.2 billion, an increase of 54.2 percent over the same month last year. In May, remittances rose 15.3 percent on a month-over-month basis.

In the 11 months (July-May) of the fiscal year 2024, Pakistan received $27.1 billion in remittances from its citizens working abroad, representing an 8 percent annual increase.

An all-time monthly surge in remittance flows occurred in May, primarily due to seasonal factors or Eid-related inflows, as Pakistanis living abroad sent large sums of money to their families to purchase sacrificial animals in preparation for Eidul Azha, which falls in the third week of this month. Analysts attribute this to these events.Saudi Arabia ($819.3 million), the United Arab Emirates ($668.5 million), the United Kingdom ($473.2 million), and the United States of America ($359.5 million) were the top four countries from which remittance inflows arrived in May.

However, a shift towards more regulated money transfer channels, a spike in Pakistani immigrants in other countries, and the nation’s stable currency and economy are the main causes of the increase in remittances between July and May.

“Remittances are typically higher during the Eid season; however, the record high numbers are likely due to a stabilising economy and a large number of people going abroad for work,” said Maaz Azam, an analyst at Optimus Capital Management. Remittances are exceeding forecasts, according to a note from Topline Securities, since they were $27 billion in July through May of FY2024, compared to the predicted $28 billion for the entire year. In the same way, the IMF predicted $28 billion in overseas remittances for FY2024.

“We believe, with this momentum and growth trajectory, Pakistan can achieve remittances of $29.5-30 billion for FY2024, up 8-10 percent YoY,” it said. “That said, we believe, higher momentum in remittances is likely to persist due to stability in PKR/USD and expectations of new IMF programme,” it added.

Remittances are a major source of non-debt-creating inflows that Pakistan relies on to maintain its foreign exchange reserves. Even though the SBP’s reserves, which were $9.1 billion as of May 31, are sufficient to cover imports for nearly two months, they are still low and won’t be sufficient to fund expected external financing needs for the next few years at the very least.

Pakistan has a looming deadline to repay a substantial amount of debt by July 2024, much of which relies on debt rollovers. The frequent visits of the Prime Minister and his team to Saudi Arabia, UAE, and China are mainly aimed at securing these rollovers, which are essential for setting the stage for the IMF programme.