EDITORIAL: Home remittances rose by 13.4 percent in December 2023 compared to the same month a year ago - to 2.4 billion dollars against 2.099 billion dollars. Three observations are in order.
First, the decline in remittances in December last year is exclusively attributable to the then Finance Minister Ishaq Dar’s extremely flawed policy to control the rupee-dollar parity without the foreign exchange reserves to intervene in the market that, in turn, led to multiple exchange rates with the differential between the hundi/hawala rate and the interbank rate as high as 40 to 45 rupees per dollar, fuelling the re-emergence of the illegal hawala mechanism.
It is relevant to note that this inane policy was implemented by Ishaq Dar during his third tenure as finance minister (2013-17), which led to the country experiencing the highest-ever current account deficit of 20 billion dollars in 2018 with, at the time, foreign exchange reserves propped up by massive borrowing, the cost of which the country continues to pay to this day.
Thus, to compare inflows in 2023 with 2022 data, especially after the agreement on the Stand-By Arrangement with the International Monetary Fund was reached on 29 June 2023 whose major component was a reversal of the control over the rupee-dollar parity may not quite be comparing apples and oranges but it certainly qualifies as comparing tangerines with oranges.
Secondly, what is highly disturbing is that inward inflows of remittances during the first six months of the current fiscal year are lower than the comparable period of the year before – 13.4 billion dollars this year against 2022’s 14.417 billion dollars - a decline of nearly 7 percent. It is relevant to note that Dar took oath on 27 September 2022 and hence the control of the rupee did not begin till October 2022 and therefore the recent rise in remittance inflows should not be a source of comfort for the stakeholders.
In addition, it is also concerning that the inflow rise is sourced to European countries rather than from the two existing major sources of remittance inflows - Saudi Arabia and the United Arab Emirates - countries which remained a primary source of remittances for Pakistan - though inflows from the two countries suffered a significant decline in the first six months of the current year, from Saudi Arabia remittance inflows declined by 8.9 percent and from the UAE by 10.9 percent. In the case of Saudi Arabia it is pertinent to mention that unlike the previous practice it has now started allowing some more categories of workers to live with their families in the kingdom. This is bound to adversely impact remittance flows back home.
And finally, focusing on a percentage rise rather than on total inflows appears to be an attempt to undermine the post-Covid-19 importance of remittance inflows as a percentage of the desired foreign exchange earnings particularly as they surpassed exports in fiscal year 2021.
In December 2021 remittance inflows were a high of 2520.4 million dollars against the 2381.5 million dollars in December 2023 – or a decline of nearly 6 percent. And this decline in spite of the decision announced by the Caretaker finance minister dated 15 September 2023 that an unbudgeted 80 billion rupees would be allocated to re-energize the flow of remittances through official channels.
Twenty billion rupees was released to the State Bank of Pakistan the next day, with no further reported disbursements on this account, however other than claiming an uptick in remittance inflows due to measures taken there is no update on how the taxpayers’ money was spent and whether the rise in inflows in December 2023 is seasonal or due to the disbursed 20 billion rupees or indeed due to meeting the IMF prior Stand-By Arrangement condition to ensure a market-determined exchange rate.
While one can understand the need to present data in a positive light for the economic team leaders, a fact that can be supported by focusing on percentages when the totals are low, yet there is a need to carefully balance this approach with the limitations it may place on the team leaders to take appropriate timely mitigating measures.
Copyright Business Recorder, 2024
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