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.
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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.
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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.