EDITORIAL: The State Bank of Pakistan (SBP) website notes a rise in March 2023 remittances to 2.532 billion dollars against 1.987 billion dollars in February 2023 though the comparable figure for 2022 was higher at 2.834 billion dollars – a 27 percent rise from February to March 2023 and a decline of 10.5 percent in March 2023 from March 2022.
Two observations are critical. First, Ramazan is usually marked by higher remittances and the trend in previous years reflects this. In 2022 (Ramazan dates 2 April to 1 May) March inflows were 2.834 billion dollars and in April inflows were 3.124 billion dollars followed by a decline in May to 2.346 billion dollars.
In 2020 (Ramazan 13 April to 12 May) March inflows were 2.723 billion dollars, April 2.792 billion dollars and May witnessed a decline to pre-Ramazan level of 2.506 billion dollars.
In 2020 (Ramazan 24 April to 23 May) the inflows for March were 1.904 billion dollars, April 1.785 billion dollars and in May 1.865 billion dollars. These figures did not conform to the norm during Ramazan mainly because of the Covid-19 lockdown that began late March in Pakistan. And in 2019 (Ramazan 6 May to 5 June) inflows for April were 1.733 billion dollars, in May 2.302 billion dollars, and to pre-Ramazan levels that are lower in June to 1.636 billion dollars.
The rise in remittance inflows in March with the onset of Ramazan compared to the month before is therefore as per the norm.
Secondly, the International Monetary Fund (IMF) may legitimately point to the 10.5 percent decline in remittance inflows in March 2023 against March 2022, a rise notwithstanding the fact that in March 2022 Ramazan was a month away, and claim that this is indicative of overseas Pakistanis’ trust in Imran Khan’s integrity rather than in the status-quo parties.
However, this argument may be partly countered by the fact that the state of the current state of the economy as opposed to in March last year has considerably worsened.
And while the existing prohibitively high rate of inflation may well have led to higher remittance inflows to sustain the quality of life of the families of the remitters resident in Pakistan yet the rupee depreciation in recent months has almost kept pace with the rate of inflation. In other words, Ramazan culminating in Eid may have played a much more critical role in the rise in remittances in March this year.
Whatever the argument or the counter argument, a political party may adhere to the fact of the matter that no major government policy initiative has been taken recently to promote remittances through official channels and instead the disastrous policy to control the official external rupee rate, in effect from September 2022 to 26 January 2023, negatively impacted on the country’s remittance inflows to the tune of nearly 2 billion dollars in the current year alone. This policy was abandoned on 27 January 2023 to meet IMF’s condition, which was agreed and implemented from May 2019 till September 2022, of a market-based exchange rate.
What is ironical is that while the largely unskilled Pakistani labour abroad is remitting foreign exchange to the country, a desired form of strengthening the foreign exchange reserves, yet outward flows by the Afghans remain unchecked.
In addition, our elite, fearful of an eroding rupee value vis-a-vis other currencies and uncertainty amongst private sector economic players as to how long the exchange rate restrictions resulting from limitations on imports against letters of credit and outstanding remittances on ticket sales by foreign airlines and affreightment payments to shipping companies, etc., be sustained.
In sum, not only is State Bank of Pakistan (SBP) required to take further initiatives aimed at promoting remittance inflows, the Ministry of Finance must continue to adhere to a market-based exchange rate because that would better address the balance of payment pressures.
Copyright Business Recorder, 2023