Remittances fall 10 percent in May as grey market thrives

By Staff Reporters

KARACHI: Remittances from overseas workers fell 10 percent year-on-year and 4 percent month-on-month to $2.1 billion in May, as a widening gap between official and unofficial exchange rates lured more inflows into the grey market, central bank data showed on Tuesday.

The country received $24.8 billion in remittances in the first 11 months of the 2022/23 fiscal year, down 13 percent from the same period a year earlier, the State Bank of Pakistan (SBP) said.

The decline was attributed to higher inflation and economic slowdown in host countries, as well as a widening gap between official and unofficial exchange rates that encouraged workers to use informal channels to send money home, analysts said.

The drop in remittances, a key source of foreign exchange for Pakistan, could complicate its efforts to secure a $1.1 billion tranche from the International Monetary Fund that has been delayed for a year due to disagreements over reforms.

Pakistan’s foreign exchange reserves stood at less than $4 billion as of June 9, barely enough to cover two months of imports.

Currency dealers said the government had failed to address the reasons for the decline in remittances, which include a shortage of dollars in the legal market and a relaxation of rules for importers to arrange their own foreign currency.

The illegal market offers dollar prices more than 20 rupees per dollar higher than the banking market rate, attracting more remittances from expatriate workers who want to maximise their earnings.

Saudi Arabia remained the largest source of remittances for Pakistan, but inflows from there fell 16.3 percent year-on-year to $5.9 billion in the July-May period. The United Arab Emirates was the second-largest source, but inflows from there dropped 19.2 percent to $4.3 billion.

Remittances from the United Kingdom fell 8 percent to $3.7 billion, while those from the United States rose 0.9 percent to $2.8 billion.

Inflows from the Gulf Cooperation Council countries fell 11.5 percent to $2.9 billion and those from European Union countries fell 7.7 percent to $2.8 billion.

The dollar was officially available at 286-287 rupees in the inter-bank market on Tuesday, but the grey market offered up to 311-313 rupees per dollar.

Analysts expect some improvement in June due to Eid festivities and exchange rate stability.