The inflows of workers’ remittances sent home by overseas Pakistanis experienced a significant slowdown, declining by 14% to a cumulative $27 billion in the previous fiscal year ending June 30, 2023. The availability of a more favourable rupee-dollar exchange rate in illegal markets diverted the flows away from legal channels, impacting the country’s foreign exchange reserves, which currently stand critically low at $4.4 billion. The government has implemented import controls to ensure the timely repayment of maturing foreign debt.
On Monday, the State Bank of Pakistan (SBP) reported that non-resident Pakistanis had dispatched a record-high $31.3 billion in fiscal year 2022.
In June, the final month of FY23, remittances saw a 4% improvement hitting $2.2 billion compared to $2.1 billion received in May 2023. Expatriates sent higher funds to their family members to celebrate Eidul Azha, which fell in the last week of the month. However, remittances for the month witnessed a 22% decline compared to the previous year’s.
Former research director at Topline Securities, Yousuf M Farooq, explained, “The government’s interventions in (legal) currency markets from time to time during the year kept creating differences in the rupee-dollar exchange rates between legal and illegal markets.”
“The availability of better exchange rates in the illegal hawala-hundi market attracted a section of overseas Pakistanis resulting in them sending funds through this channel to Pakistan,” he said.
During the year, the exchange rate gap widened to approximately Rs30 per dollar, impacting the inflows of workers’ remittances. Farooq noted that the slowdown in remittance inflows was mainly recorded from Middle Eastern countries such as Saudi Arabia and the United Arab Emirates (UAE), where hawala-hundi operators are present. In contrast, inflows remained comparatively better from compliant Western countries such as the United States (US) and the United Kingdom (UK).