Markets

'Illegal channels take toll' as remittances fall nearly 16% in October

  • Inflow drops to $2.2 billion, lowest since February 2022
  • Decline attributed to rise in informal channels and global economic slowdown
Published November 11, 2022

The inflow of remittances in Pakistan fell nearly 16% in October 2022 on a year-on-year basis to $2.215 billion as informal and illegal channels of transferring money took their toll, coupled with a global economic slowdown that exacerbated the issue.

According to data released by the State Bank of Pakistan (SBP) on Friday, the inflow of remittances stood at $2.628 billion in the same month last year. The inflow in October is also the second successive month-on-month decline.

Remittances fall 12.3% in September 2022, amount to $2.4 billion

Talking to Business Recorder, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, said the decline in remittances is due to a rise in hawala and hundi practices.

“A number of things changed in recent months as the world is in engulfed in an economic slowdown.

"During this month, the gap in dollar rate widened between the formal and informal markets. As a result, a large chunk of remittances has been channelled towards informal markets through hundi and hawala."

During October, a shortage of dollars and even other currencies was witnessed in the open market even as the rupee remained stable in inter-bank. At the time, market experts attributed the shortage to smuggling and higher rates offered in informal/illegal channels as the reasons.

Rauf said that on a monthly basis remittances declined by $221 million, out of which a decrease of $131 million was witnessed from GCC countries.

“This is despite economic growth in these countries, which indicates that remittances are diverting towards informal markets,” said Rauf.

“Meanwhile, there is an economic slowdown in western countries i.e. UK and EU.”

The analyst believed that remittances are expected to decline in November as the gap in the US dollar rate offered between formal and informal channels remains.

“Moreover, there is an Afghanistan factor as an outflow of dollars towards the neighbouring country is also denting remittance inflows, which needs to be seen by the central bank,” he added.

ECs can sell 20pc inward remittances to customers: SBP

On a month-on-month basis, remittances fell 9.1% as they amounted to $2.437 billion in September 2022. On a cumulative basis, the inflow of remittances during the July to October period of the fiscal year 2022-23 stood at $9.9 billion, which was 8.6% lower than $10.8 billion in the same period of the previous fiscal year.

Overseas Pakistanis in Saudi Arabia remitted the single largest amount in October 2022 as they sent $570.5 million during the month. This was 17% lower than the $689.8 million sent by expatriates in September 2021.

Remittances from the United Arab Emirates amounted to $427 million during the month, a decline of 11% compared to $479.1 million in the same month last year.

Inflows from the United Kingdom fell 22% as they declined from $355.1 million in October 2021 to $278.8 million in October 2022.

However, remittances from the US rose 6% as they amounted to $253.1 million in October 2022. Overseas Pakistanis in the US sent $238.3 million in the same month last year.

Comments

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Ali Aayz Shah Nov 11, 2022 09:39pm
Apart from the 2 reasons that you mentioned there is one more factor you missed, A large majority of the overseas Pakistanis were not satisfied with the policies of the existing Government, especially its stance on EVM & Overseas Voting, they, therefore, decided to put a squeeze on remittances as much as they could & have taken their loved ones into confidence before holding back part of their remittances as long as present-day Govt is in power
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Naeem.amjad Nov 12, 2022 04:35am
@Malik, rate incarese hun gy kia?
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Fazeel Siddiqui (Overseas Pakistani) Nov 14, 2022 07:11pm
To real rulers of Pakistan with 75 failed and now PDM the only solution is beg, borrow & blame world for own failures. Their focus is short term measure such as artificially keeping rupee to USD rate 50% lower which rips off Overseas Pakistanis hard earnings just to profit importers through cheap dollars. Unhappy Overseas Pakistanis will not let PPP/PMLN burn cheap dollars in market just for gimmicks, they're holding FX in hand or investing in host country.
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