Pakistan’s crackdown on illegal dollar trade boosts remittances: report

Pakistan’s efforts to curb illegal foreign-exchange trades are seen boosting the nation’s remittances to a record high this year, reports Bloomberg.

The cash sent home by those living offshore rose 34 per cent to $14.8 billion in the five months through November from a year ago, according to central bank data. This comes after the country’s crackdown on unofficial buying or selling of dollars. Finance minister Muhammad Aurangzeb expects remittances to reach an all-time high of $35 billion this year from $30 billion last year.

“The currency reforms do seem to have boosted remittances,” said John Ashbourne, emerging-market economist at BMI, a Fitch Solutions company in London. “This increase might be because remittances that had previously been sent using the black market are now being sent via official channels.”

Higher remittances may augment the nation’s foreign-exchange reserves and help reduce a major economic vulnerability that pushed the beleaguered nation to the brink of a default last year. Pakistan has been implementing tough economic measures under the International Monetary Fund’s guidance and succeeded in securing a $7 billion loan from the multilateral agency in September.

The crackdown on the unofficial dollar trading may have helped move some of the transactions to the official banking channels. That contributed to foreign-exchange reserves rising to over $12 billion by end-November, the highest since March 2022.

The Federal Investigation Agency raided offices of money changers, arrested people and also deployed security officials in plain clothes at money exchanges in its efforts that started over a year ago.

“All kinds of negative currency trading have significantly declined,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan. He estimates the size of the illegal dollar-trading market has fallen at least 20 per cent in the past two years, with as much as $10 billion going into formal banking channels. The rupee has gained 2.0 per cent this year and is among the best-performing emerging-market currencies, helped by the IMF loan programme and remittances.

The crackdown on illegal trades helped the country get major forex-reserves support in the shape of remittances and that helps currency stability, said Sana Tawfik, head of research at Arif Habib Ltd. in Karachi.