In July, remittances from overseas Pakistanis fell to a five-month low of $2 billion, a drop of 19% compared to the same month in the previous year. The State Bank of Pakistan (SBP) noted this decline could endanger the favourable current account balance achieved in recent months, potentially pushing it into a deficit. As a result, Pakistan might face challenges like curtailing imports and a stronger reliance on foreign debt. The rupee weakening against the US dollar is also possible due to this financial stress.
Factors Leading to the Remittance Drop
A prominent banking figure identified that better foreign currency rates in the unofficial hawala-hundi market had diverted some non-resident Pakistanis from using official channels. Middle Eastern countries, particularly Saudi Arabia and the UAE, observed a significant decline in remittances. One reason for this disparity is Western countries’ stricter currency market regulations.
The rise of illicit operators in the hawala-hundi market, offering better rates, has further impacted the official remittance figures. The SBP data underscores this trend, with remittances from Saudi Arabia and the UAE dropping by 16% and 31% in July. Western countries also reported declines but at varying rates.
Implications and Future Projections
The International Monetary Fund (IMF) had expected workers’ remittances to average $2.7 billion per month for the 2024 fiscal year, a figure that July’s data falls short of. This gap raises concerns over Pakistan’s ability to manage its trade and current account deficits. Despite the decline, some experts still believe remittances for FY24 might remain close to last year’s figures, hovering around $27 billion. However, the decreased inflow might force Pakistan to seek additional borrowing to cover the projected current account deficit for FY24.
