EDITORIAL: Remittances in March 2024 soared to 2,953.7 million dollars against 2,250.1 million dollars the month before (a rise of 31.2 percentage points) and by 16.4 percent when compared with March 2023 remittance inflows of 2,536.7 million dollars. The July-March figure for the current fiscal year was 21,036.8 million dollars with the comparable figure for the year before estimated at 20,844.8 million dollars – or a growth of less than one percentage point – 0.92 percent.
The massive decline in remittance inflows from October 2022 till end June 2023 was due to the implementation of flawed economic policies that violated the then existing agreement with the International Monetary Fund (IMF) leading to the then ongoing programme suspension that, in turn, triggered friendly countries to also withhold pledged assistance. This prompted the then prime minister, Shehbaz Sharif, to bypass the then finance minister Ishaq Dar and engage directly with the Fund, culminating in a staff-level agreement (SLA) on 29 June 2023 on the Stand-By Arrangement (SBA) that is reaching its scheduled end this month.
It is therefore rather worrisome that even with the implementation of the conditions agreed with the IMF, reflected by the 20 March 2024 SLA reached on the second and final review of the SBA, remittance inflows for the first nine months of the current year are less than a percentage point higher than during the comparable period the year before which would no doubt lead many to conclude that the damage done to official inflows through artificially controlling the rupee-dollar parity persists to this day as the remitters’ confidence in sending money through official channels has not been restored to the pandemic levels when the illegal hundi/hawala system was no longer in operation due to lockdowns.
Nonetheless, there has been a significant rise in March 2024 remittance inflows when compared to the month before and while this spike is usual at the end of Ramazan there is almost certainly another contributory factor – the exchange rate differential. Last year the March average interbank rupee-dollar parity, the rate at which official remittance inflows are calculated, was 280.2 rupees to the dollar, fluctuating between 266.23 rupees on 1 March, to 276.3 rupees on 9 March, 283.1 rupees on 254 March and 283.6 rupees on 31 March. In March 2024, the lowest rupee-dollar parity was 277.58, the highest 279.4 and the average rate was 278.6 or a rate that was lower than in March 2023. In other words, the exchange rate was not a major factor in raising remittance inflows.
Could inflation be a contributory factor? In March 2023 Consumer Price Index was a high of 35.4 percent against a claimed CPI of 20.7 percent in March 2024. While data based on independent calculations indicates that the 2024 figure has been adjusted downward by 2 to 3 percentage points yet even if this is taken into account the decline in inflation this year is significant when compared to last year.
This positive element is negated by the fact that average CPI July-March 2024 is only marginally lower than the same period of the year before – 27.06 percent against 27.26 percent. However, the cumulative impact of high inflation throughout the current fiscal year as opposed to the previous year (barring a decline in February and March 2024 against the same two months a year before) may be the factor that compelled remitters using the official channel to remit a higher amount than before.
It is important to note that while there is some ground for optimism yet the next two months’ data may provide the critical ingredient to determine whether the remittance inflows through official channels that suffered massively due to Ishaq Dar’s flawed policies, up to 4 billion dollars per annum, have recovered.
Copyright Business Recorder, 2024
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