EDITORIAL: Remittances surged by 34 percent year-on-year to 14.76 billion dollars July-November 2024 against 11 billion dollars in the comparable period the year before though November 2024 inflows declined marginally to 2,915.2 million dollars as opposed to 3,054.6 million dollars in October.
Saudi Arabia, the UAE and other Gulf Cooperation Countries (GCC) accounted for 55 percent of all remittance inflows while the US, UK and European Union countries accounted for a total of 5,446 million dollars for a not to be scoffed at 37 percent of all remittance inflows.
Two observations are critical. First and foremost, remittances rose from all countries in the current year. Inflows from Saudi Arabia and the UAE July-November in the current fiscal year rose by one billion dollars each compared to the year before – from 2,676.5 million dollars last fiscal year to 3,653 million dollars this year in Saudi Arabia and from 1,909.3 million dollars last year to 2,952.6 million dollars this year in the UAE while inflows from the UK rose by 562.1 million dollars during the first five months of the current year compared to the year before (from 1,620.1 million dollars in 2024 to 2,181.1 million dollars this year) and from European Union countries by 364.2 million dollars.
The reason for this rise is partly due to the incentives extended by the State Bank of Pakistan to remitters as well as the clamping down on the illegal hundi/hawala usage of money transference from one country to another not only by Pakistani authorities but also by authorities the world over.
However, another major reason for the recent spike is the SBP decision to abide by the pledge made to the International Monetary Fund (IMF) under the staff-level agreement reached on the nine-month-long Stand-By Arrangement (SBA) on 28 June 2023 that it would not intervene in the foreign exchange market – a pledge extended to the 37-month-long ongoing Extended Fund Facility programme.
Data suggests that during the Ishaq Dar tenure as the finance minister till the SBA agreement was reached the country lost 4 billion dollars in remittance inflows.
Second, exports, the other desired source of earning foreign exchange, were lower than remittances during the first five months of the current year as opposed to the same period of last year: July-November 2024 remittances amounted to 14.766 billion dollars while exports were 13.691 billion dollars. Last year (July-November) exports were higher - at 12.162 billion dollars as opposed to remittances of 11.053 billion dollars.
While the Ishaq Dar factor (intervention in the foreign exchange market) was being eased out last year though still negatively impacting on remittances yet the current year’s balance tilting in favour of remittance inflows against exports should have raised serious concerns amongst the authorities on two counts: (i) is the decline in exports partly explained by the IMF condition to remove all fiscal exemptions as well as credit incentives for exports and productive sectors (including electricity subsidy)?; and (ii) the dearth of foreign exchange reserves, at present the situation has improved but reserves are largely debt-based, continues to compel the government to delay the opening of letters of credit even for raw material imports and concurrently slowed down the repatriation of profits of Independent Power Producers as well as other foreign companies.
In addition, detailed documents of the staff-level agreement reached with the Fund notes that “the authorities viewed shortening of the period for repatriation of export proceeds as appropriate given still fragile external conditions.”
There is, therefore, an urgent need to undertake appropriate studies to determine the actual impact of IMF conditions on the productive sectors, which provide goods and services as well as employment opportunities and itemise the cost of the fiscal and monetary incentives that were extended in the past at the taxpayers’ expense and the resulting benefits to the economy and the general public.
Without such empirical studies the IMF programme design would remain anchored in a generalist approach rather than one specific to Pakistan’s conditions which, in turn, would have the capacity to lift the country out of its perennial dependence on multilateral and bilateral support.
Copyright Business Recorder, 2024
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