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EDITORIAL: Remittance inflows declined during the first two months of the current fiscal year against the comparable period of the year before by 21.6 percent – to 4.12 billion dollars from 5.25 billion dollars.

The reason why is fairly obvious: July-August 2022 was marked by the then finance minister Miftah Ismail and the Acting Governor State Bank of Pakistan (SBP) reaching a staff-level agreement with the International Monetary Fund on the seventh/eighth review under the Extended Fund Facility programme on continuing with a market-based exchange rate, a positive discount rate (higher than the rate of inflation) and a sustainable budget deficit (under 7 percent) - policy measure openly violated subsequent to the appointment of Ishaq Dar as the finance minister on 27 September 2022.

The country was then subjected to economically unsound policies that included a controlled rupee-dollar parity at a time when foreign exchange reserves were too low to enable SBP to intervene in the market to shore up the rupee, thereby giving rise to three rupee-dollar rates: the interbank rate that was much lower than the open market rate at which dollars were not available that, in turn, gave rise to the grey market that revived the illegal hundi/hawala system (negatively affected due to the Covid-19 global lockdown) with, at one point in time, an offer of 30 rupees higher than the official rate.

During the Dar months external borrowing, which had propped up the reserves during Dar’s previous stint as the finance minister (2013-17), dried up as the IMF refused a staff-level agreement on the ninth review until and unless the violations by Dar were reversed.

The nine-month 3 billion dollar Stand-By Arrangement with the IMF was reached on 29 June 2023 wherein the government confirmed the implementation of all the conditions that were violated under the EFF, including a market-based exchange rate.

Thus the remittance inflows of July and August 2023 reflect a market-based exchange rate and their continued decline indicates that the government would have to further incentivise inflows through official channels before the remitter reverts back to using the legal system. Invoking patriotism is likely to have limited success as the remitters’ priority is to enable their families back home to meet their monthly budgets.

Remittances and exports are a desired form of foreign exchange earnings for Pakistan and in fiscal year 2021-22 total remittance inflows reached a high of 31.278 billion dollars comparable to total exports of 31.792 billion dollars (largely due to a rise in the international prices of our traditional exports rather than any increase in volume).

Last fiscal year total remittance inflows declined to 27 billion dollars attributed to Ishaq Dar’s flawed policy decisions as did exports to 27.735 billion dollars. Raising exports is dependent on fiscal and monetary policies in place that in the past have included subsidies (fiscal and on utilities) as well as cheap credit, thereby narrowing the already narrow fiscal space.

Today monetary and fiscal policies are highly contractionary, given that these are conditions for the ongoing SBA and hence export revenue is unlikely to rise in the near future.

However, remittances through official channels can be incentivised at a cost to the treasury much less than required by the exporters and hence one would hope that the government and the SBP give appropriate attention to identifying measures that would fuel remittance inflows – measures that represent out of the box thinking.

Copyright Business Recorder, 2023

Comments

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Adnan Aziz Sep 15, 2023 10:22am
'.....Invoking patriotism is likely to have limited success as the remitters’ priority is to enable their families back home to meet their monthly budgets....' The so-called 'thekedars' of patriotism who see only themselves to be as patriots and all others as traitors, who poke their nose into every matter, are the largest consumers of the country's budget.
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KU Sep 15, 2023 11:20am
Mental constipation seems to be the rule in our public offices and SBP, but it's not that simple when other things are ensured not to remain equal. In any case, the confidence of overseas patriots has ebbed, and they are voicing their concern and complaints on the illegal acts and heist of ''Qabza Mafia'' on their land investments, and on similar lines, the shove and push by other public sector departments.
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Tulukan Mairandi Sep 15, 2023 01:40pm
These overseas Pakistani leeches must be thought a lesson. Tax them. And bar their homes from receiving electricity and water connections if they don't remit a minumum of 50% of their gross income via banks.
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syed hidayat Ullah Sep 15, 2023 02:10pm
Just playing with the tools.
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Az_Iz Sep 15, 2023 04:39pm
At least the incompetent Dar is gone.
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Sarwar Haq Sep 15, 2023 05:19pm
Three big reasons: 1) Many overseas Pakistanis are unhappy with the current political situation in PK and are thus holding back on remittances 2) Disparity between official and actual exchange rate is making people use backdoor channels 3) Inflation all over the world is having an impact on overseas Pakistanis so they have less spare money to remit
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Syed FAB Sep 16, 2023 08:01am
Moazziz Ashrafia will now have less fund to buy designers clothing, tour abroad including free Hujj wa Umra, awaam to merr hee rahee hai
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Ahmad Hassan Awan Sep 16, 2023 08:29am
In this editorial no measure has been suggested to goad expatriates to use official channels for remitting foreign exchange to Pakistan. What are those specific incentives which Government should offer. The writer just engaged in fluffy verbosity. This editorial leaves much to be desired.
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Waqas Hussain Sep 16, 2023 09:03am
@Tulukan Mairandi, Even you got no shame on saying this...their families are paying equal taxes in as all Pakistani did...its better to learn how to earn money not to rely on others
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Badar Sep 16, 2023 09:14am
@Tulukan Mairandi, awwww , i am sad that you can't purchase luxury items
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Badar Sep 16, 2023 09:15am
Establishment is the constipation of Pakistan
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Tulukan Mairandi Sep 16, 2023 11:47am
Smash these overseas Pakistanis with higher taxes. They are shamelessly investing overseas such as in Dubai and even in India's Sensex via trade platforms. If at least 50% of their GROSS income is not remitted to Pakistan via banks, their families must be legally disenfranchised from various govt benefits and facilities. Exchange rate should also be tied to remittance amount and frequency. Hi remittance and frequency should entitle remitter to better rates and vice versa.
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Zeeshan Sep 16, 2023 12:58pm
Pakistan
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Ehsan Ullah Sep 16, 2023 03:30pm
@Tulukan Mairandi, Tery Baap k paisy nhi hyn. Whatever they earn , it's their choice to do whatever they want . If you can't have a stable and secure country then how can you think of remittance?. Look at your non sense language. Lagta hay tery Baap nay Kuch Tameez he nhi sikhaii
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Farhan Hamid Sep 17, 2023 04:58am
@Tulukan Mairandi, I would suggest you get some basic education or else you might actually start believing that your absurd thoughts are actually real ideas.
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John Sep 17, 2023 12:14pm
The worse is yet to come!
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SAMIR SARDANA Sep 17, 2023 12:23pm
ON 1ST AUG 2023 THE USD INDEX WAS 101 ON 17TH SEPT THE USD INDEX WAS 105 IN THE INTERIM THE PKR APPRECIATED DUE TO ARMY CRACKDOWN AND RS 5000 RUMORS ! WHO IN HIS RIGHT MIND WILL REMIT USD AT SBP IBR AT THESE RATES- WHEN USD INDEX IS RISING ? OIL IS 90 PLIS ! OIL RSING AND USD INDEX UP MEANS PKR HAS TO FALL ! ONLY REMITTANCES FOR ESSENTIALS IS COMING TO PAKISTAN ! SAVINGS OF OVERSEAS PAKISTANIS IS NOT COMING ! PKR HAS TO HAVE SOME SYMMETRY WITH USD INDEX AND OIL ! ELSE OVERSEAS PAKISTANIS WILL HAVE DOUBTS,AND WAIT AND WATCH, FOR SHARP CRACKS IN PKR ! SAMIR SARDANA
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