Remittances - all gloom and doom?

It’s been the fifth consecutive month that the remittance inflow to Pakistan has been falling (month-on-month). It’s been fifth consecutive month that these inflows from overseas Pakistanis have been falling on a year-on-year basis to. And now finally after faltering for the past 5 months, monthly remittances haves slipped below $2 billion mark. As per the central bank’s data, remittances in Jan-23 have been recorded at $1.89 million – a 32-month low – or lowest since April 2020 (early pandemic times). The monthly remittances in Jan-23 are down by 13.1 percent year-on-year, and 9.9 percent month-on-month. Overall, remittances during 7MFY23 decreased by 11 percent year-on-year. Normally, the central bank gives a short description of the trend in its press release. However, this time the regulatory has remained silent on the drop in remittances.

The fall in remittances in the last five to six months has largely come from the exchange rate movement. The artificially low price of dollar in the interbank shifted many to the unregulated black market, which was also the case for overseas Pakistanis sending money back home. The huge gap in interbank, open market and illegal market rate for dollar became a key factor behind falling remittances through legal channels as the use of hawala and hundi kept providing better rates to the senders. However, now that the cap on the PKR-USD rate has been lifted as of Jan-26, the gap has been converging, which is giving signals that the coming months might see an uptick in remittances once again.

In terms of host countries, remittances from Saudi Arabia and UAE fell by 25-30 percent year-on-year in Jan-23., whereas remittances from UK and the US improved slightly by and one percent year-on-year, respectively. This trend also shows how unofficial remittances replaced the remittances sent through official channels in key markets like KSA< UAE and the GCC, while the increase in official remittances from UK and the USA were not affected as such due to stricter measures to control black market.