In the previous fiscal year that ended on June 30, 2023, the inflows of workers’ remittances sent home by overseas Pakistanis experienced a significant slowdown, declining by 14% to a cumulative $27 billion.
This decline was attributed to the availability of more favorable exchange rates in illegal markets, diverting remittance flows away from legal channels.
?As a result, Pakistan’s foreign exchange reserves, which currently stand at a critically low $4.4 billion, were impacted. In response, the government has implemented import controls to ensure the timely repayment of maturing foreign debt.
According to the State Bank of Pakistan (SBP), non-resident Pakistanis had sent a record-high $31.3 billion in the fiscal year 2022. However, in June, the final month of FY23, remittances saw a 4% improvement, reaching $2.2 billion compared to $2.1 billion in May 2023.
The increase in June was attributed to expatriates sending higher funds to their family members for the celebration of Eid Ul Azha. Despite the monthly improvement, remittances for June witnessed a 22% decline compared to the same month in the previous year.
Yousuf M Farooq, former director of research at Topline Securities, explained that the government’s interventions in legal currency markets throughout the year created differences in the rupee-dollar exchange rates between legal and illegal markets. This led to a widening gap in exchange rates, reaching approximately Rs30 per dollar, which impacted the inflow of workers’ remittances.
The slowdown in remittance inflows was particularly noticeable from Middle Eastern countries like Saudi Arabia and the United Arab Emirates (UAE), where hawala-hundi operators operate. In contrast, inflows remained relatively better from compliant Western countries such as the United States (US) and the United Kingdom (UK).
Political and economic uncertainties also played a role, as non-resident Pakistanis opted to send only essential amounts to their relatives in Pakistan.