Pakistan lost over $4 billion in FY23 in remittances as illegal channels offer higher exchange rates

Pakistan lost over $4 billion in remittances sent by expatriates to illegal channels in the current fiscal year, much higher than the amount the cash-strapped government struggled to secure from the IMF as a bailout.

Data released by the State Bank of Pakistan (SBP), the country's central bank, on Monday showed that the month-on-month remittances increased slightly by 4 per cent to $2.183 billion in June, while it witnessed a 22 per cent decline when compared with the $2.8 billion the country received in June 2022.

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The country received a total of $27.024 billion in remittances during FY23, against a record $31.278 billion in FY22, a decline of 13.6 or $4.254 billion, the Dawn newspaper reported.

The central bank did not offer any reason for the decline of the remittances, but analysts said the government’s effort to keep the dollar at lower than actual rates hit the inflows through banking channels.

The government tried to maintain the dollar-rupee parity at Rs 220 in the first half of FY23, which proved counterproductive. The greenback grossly appreciated in the open market, and resultantly a grey or black market emerged that started offering Rs 20 to Rs 25 per dollar higher rates, badly hitting remittances.

However, under pressure from the International Monetary Fund (IMF), the government uncapped the exchange rate on February 26, and the dollar immediately jumped to Rs 269.

With fluctuations in subsequent months, the greenback reached Rs 299 in the interbank on May 11 but remained in the range of Rs 280-290.

“During the entire fiscal year FY23, the country remained under the grip of severe political and economic uncertainties which practically weakened both the economy and the currency,” said Atif Ahmed, a currency dealer in the interbank market.

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“Along with the price difference, high-interest rates in the international market have also provided an opportunity for the remitters for earning better returns,” said Samiullah Tariq, Head of Research and Development at Pakistan Kuwait Investment Company (Private) Limited.

The highest remittance inflow was from Saudi Arabia, but it fell by 16.9 per cent to $6.445 billion in FY23. In percentage terms, remittances from the UAE witnessed a contraction of 20.5 per cent to $4.468 billion.

Remittances from all important destinations noted a decline except the US which recorded a slight growth of 0.1 per cent to $3.090 billion in FY23. The inflows from the UK dipped 9.7 per cent to $4.056 billion.

The inflows from Gulf Cooperation Council (GCC) and European Union (EU) countries fell by 12 per cent and 7 per cent to $3.191 billion and $3.12 billion, respectively, during the outgoing fiscal year, according to the report.

Former premier Imran Khan took to Twitter to criticise the government by saying that when former Army Chief Qamar Javed Bajwa “conspired with (Prime Minister) Shehbaz Sharif and his coterie of looters & money launderers, PTI (Pakistan Tehreek-e-Insaf party) in its last year had increased remittances and exports by $8.7 billion”.

“The imported govt’s policies have caused a loss of $8.5 billion to the economy in last 12 months with a sharp fall in exports and remittances,” he said, adding that coupled with the worst inflation in the country’s history, it has crushed the poor and the middle class, especially the salaried class.

Meanwhile, the GDP growth also declined from 6.1 per cent to 0.3 per cent, with a steep decrease in industrial growth, causing large-scale unemployment, Khan said.

The amount Pakistan lost in remittance is much higher than the amount its government struggled to secure from the IMF during the outgoing fiscal year.

Pakistan and Washington-based IMF reached a long-awaited staff-level agreement on June 29 to inject $3 billion Standby Arrangement into the ailing economy after months-long negotiations that pushed the country to the brink of default.

Pakistan's economy has been in a free fall mode for the last many years, bringing untold pressure on the poor masses in the form of unchecked inflation, making it almost impossible for a vast number of people to make ends meet.