A further decline in remittances

16 Feb, 2023

EDITORIAL: Remittances declined to under 1.89 billion dollars in January 2023, thereby registering a continuous decline in comparison to the year before. Inflows in July-January 2021-22 were 17.98 billion dollars against 16 billion dollars in the comparable period of 2022-23 – a decline of a total of 1.98 billion dollars or 12 percent.

What is noteworthy is that the decline gathered momentum from October 2022 onwards accounting for 1468.7 million dollar lower inflows than the comparable period of the year before – or 74 percent of the decline is from October 2022 till January 2023.

The finger of blame is perhaps pointing squarely at the change of command at Ministry of Finance in September 2022 and on the economically unsound if not downright specious policy of artificially keeping the value of the currency strong that backfired even more definitively than during the previous tenure when Ishaq Dar was at the helm of the national economy from June 2013 to August/September 2017.

The reason is patently evident to even a freshman economic student: foreign reserves available with the State Bank of Pakistan during 2013 to 2017 were considerably healthier though well over 50 percent were borrowed. This was possible as Pakistan at that time was geo-strategically relevant to the international community and therefore external borrowing from bilaterals/multilaterals was not an issue and neither was incurring debt equity; though the government issued sukuk/Eurobonds at rates that were double what was on offer by a debt-ridden Greece.

The reserves allowed the government to artificially shore up the rupee value through market intervention though the cost payable was the frittering away of our foreign exchange reserves.

Today, reserves are around 2.916 billion dollars, not even enough for a couple of weeks of imports, and even friendly countries have linked pledges of roll-overs and additional support to the successful completion of the ninth review with the International Monetary Fund (IMF).

Soon after the departure of Miftah Ismail from the Q block (ministry of finance) last year, the government sought direct assistance from friendly countries on the misconception that it was not geo-politics that had determined assistance during its previous tenure but this time round, Dar too, like his predecessors, failed to successfully persuade debtor countries as well as the IMF team to ease the pressure of conditions associated with the Fund’s programme.

One can only hope that the government has had a reality check of what is possible and what is not, given the current state of the economy to which the flawed policies of the past forty years at least are to blame during which Dar was the finance minister thrice, Dr Hafeez Sheikh twice, and Shaukat Tarin twice.

On Dar’s return to the country after five years in the UK the rupee strengthened initially to around 216 rupees to the dollar - either on the back of the inquiry launched by Prime Minister Shahbaz Sharif in August which concluded that the disorderly market conditions were due to around five banks manipulating the foreign exchange market or due to Dar’s return as he publicly claimed credit; yet over the months that followed the gap between the interbank rate, the market rate and the rate at which dollar was actually available widened to over 40 to 50 rupees.

This difference revived the hundi/hawala market that had been dormant during the global lockdown due to the pandemic – a revival that maybe extremely difficult, if not impossible, to reverse.

It is critical for the government to evaluate the performance of all its ministers and make necessary corrections to policies pursued by them if deemed detrimental.

The buck, as repeatedly highlighted by us, stops with the prime minister and while one may understand the constraints he faces in dealing with a cabinet, which is expanding day in, day out in order to accommodate the nominees of Pakistan Muslim League-Nawaz’s (PML-N’s) partners in the Pakistan Democratic Movement (PDM) coalition government but the national economy is in such dire straits that it cannot afford to persist with any brinkmanship with the ongoing Fund programme that is critical to our effort to climb out of the hole that we have landed ourselves in.

Copyright Business Recorder, 2023

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