Remittances remain dreary

Pakistan key lifeline has been under pressure as drop in remittances continue in the ongoing fiscal year – signaling a further blow to the economy already reeling from all sort of turmoil. As per the recently announced data by the State Bank of Pakistan, the remittances sent home by expats abroad in August dropped by 24 percent year-on-year - from $2.7 billion in Aug-22 to $2.09 billion in Aug-23. Though remittances in Aug-23 were slightly up by around three percent on a month-on-month basis, the monthly inflows remained under far below the highest monthly remittances of over $3.12 billion in Apr-22. Cumulatively, remittances during the first two months of FY24 (2MFY24) were also down by 22 percent year-on-year to $4.1 billion.

The country-wise breakdown of remittances in Aug-23 shows that remittances from all key contributing countries slipped during the month. While Kingdom of Saudi Arabia continued to be the largest sender of remittances to Pakistan, money sent home by expats from KSA was down by a significant 29 percent year-on-year. Similarly, the inflows form expats in United Arab Emirates were down by a hefty 43 percent year-on-year; 10 percent year-on-year from the United Kingdom, and by 12 percent year-on-year from the United States of America.

The country incurred decline of over a billion dollar in remittances over the first two months of FY24, which doesn’t bode well at all for the already sapping economy. The key factor behind the decline n remittances has been the exchange rate. When the remittances were growing significantly during FY22, illegal and illicit trade of currency through hawala and hundi were controlled. The sliding currency created a big room for grey channels to come back into action as they offered a higher rate for a dollar compared to the price quoted by official channels including commercial banks and authorised foreign exchange companies. The difference between open market and interbank rate widened during the month, which was a key factor behind lower remittances through legal channels. This should mean that overall, the remittances should at least be the same during the month with redistribution between legal and illegal channels. Whether that’s the case, its hard to tell as the illegal channel inflows are difficult to estimate. Some reports suggest that the country lost over $4 billion to illegal channels.

Other factors at play for the decline in remittances also include the weakened economy of Pakistan and the slowdown of the real-estate sector, which accounted for a significant part of the total remittances previously. However, the argument that the decline in remittance could be driven by a decline in rupees value making more PKR at the disposal makes little sense as the skyrocketing inflation has increased expenses at home at least three times.