KARACHI:
There was good news for Pakistan’s current account deficit in October 2023, as remittances from Pakistani workers abroad hit a seven-month high of over $2.5 billion.
Increased inflows through official channels were made possible by the strong appreciation of the rupee in September and October 2023, which was supported by a robust government crackdown on foreign currency smuggling and hoarding.
According to the State Bank of Pakistan (SBP), remittances increased significantly in October, totaling $2.46 billion, a 12% increase from September’s number of $2.20 billion. From the same month last year, when sales were $2.25 billion, this year’s total is up 10%, to $2.45 billion.
Total inflows declined by 13% in the first four months (Jul-Oct) of the current fiscal year (2023-24), falling to $8.79 billion from $10.15 billion in the same period previous year.
Head of Research at Arif Habib Limited, Tahir Abbas, told The Express Tribune that the largest increase in remittances came from the Middle Eastern countries of Saudi Arabia and the United Arab Emirates. These countries have traditionally been important senders of money home, although they have been plagued by hawala-hundi scams. Pakistan and its border regions with neighbouring nations cracked down on these activities, which severed the illicit trade links and allowed for more official channel inflows in October.
The crackdown helped the rupee reach its highest level versus the US dollar in three months, at around Rs277, an increase of 11% from before the crackdown. To take advantage of the favorable exchange rates, expatriate Pakistanis were encouraged to send money to their families in Pakistan through official channels after the elimination of underground markets.
“The rupee appreciation allowed expatriates to send the maximum funds to their family members in Pakistan to benefit from the appreciation—by converting from US dollar and other foreign currencies into rupees,” said Abbas, adding, “The end of the rally was strongly believed to witness some correction in the rupee-dollar parity, which is currently underway.”
The significant increase in remittance inflows, he noted, will help keep the current account deficit in the $100-$150 million area in October. After a deficit of $3 million in the current account for the first three months of FY24, some analysts are hopeful that solid inflows will cause the account to swing into a surplus.
With low export revenues and negligible FDI, Abbas stressed the importance of workers’ remittances to the Pakistani economy. These deposits help maintain the SBP’s foreign exchange reserves, protecting them from complete depletion during times when money must be sent outside to pay off debt.
Abbas forecasts a yearly average of $2.2–$2.4 billion in remittances for the remaining months of the year, with seasonal peaks between March and June of $2.6–$2.7 billion due to Ramadan and Eid.
The full-year inflow forecast for FY23 is $28 billion to $28.5 billion, which is down from FY22’s $30 billion.
Abbas said that maintaining high levels of official channel inflows requires a watchful attitude from the government towards cracking down on illegal currency trading and black markets.
Market talk suggests that black markets and illegal currency dealers have returned to Peshawar, Pakistan, a region that borders Afghanistan. The authorities have been notified by currency traders, who are hoping for swift action.
Transfers between regions
The data reveals that in October, remittances from Pakistani workers in Saudi Arabia increased by 15%, hitting $617 million, up from $538 million in the previous month.
The monthly inflows from the UAE increased by 19% to $474 million from $400 million in the previous month.
Sales in the United Kingdom rose by 6%, reaching $330 million, from $311 million the year before. Foreign investment from the European Union increased by 10% to $298 million.
The sum increased by 7% to $283 million in the United States.
Foreign currency deposits rose by 8% in October, totaling $461 million compared to $525 million in September 2023.
