Pak lost $3.7 bn as expatriates used unofficial channels for remittances

Pakistan lost at least USD 3.7 billion in the first 11 months of the current fiscal year as expatriates used unofficial channels for remittances due to the huge exchange rate gap, the cash-strapped country's central bank has said.

The Pakistani rupee has been in a state of freefall for most of the year due to pressure on the depleting foreign exchange reserves, creating a difference between the inter-bank and private money market exchange rates.

Data released by the State Bank of Pakistan (SBP) on Tuesday showed that the country lost USD 3.7 billion in remittances during the first 11 months of FY23 mainly due to a widening exchange rate gap.

Overseas Pakistanis who sent money to their relatives and families apparently resorted to unofficial channels to transfer funds, causing a loss to the official remittances that majorly contribute to helping support the balance of payments, the Dawn newspaper reported.

It said the remittances sent by Pakistani expatriates dipped month-on-month by 4 per cent and 10 per cent year-on-year to USD 2.1 billion in May.

The inflows tumbled by 12.98 per cent to USD 24.831 billion in 11 months of FY23, compared to USD 28.489 billion in the same period last fiscal year.

Pakistan received USD 2.102 billion in May compared to USD 2.198 billion in April. By contrast, it received USD 2.34 billion in May last year.

The dip comes as Pakistan is struggling hard to get a USD 1.1 billion tranche from the International Monetary Fund (IMF) for nearly a year.

Pakistan's efforts to unlock access to the already agreed USD 6.5 billion loan package with the IMF are in a quagmire as the country's recently released budget needs to satisfy the global lender to secure the release of more bailout money for the cash-strapped country.

The loss in terms of remittances could make it even more difficult for the country to manage the external account with poor foreign exchange reserves of less than USD 4 billion, according to the report.

Currency dealers have consistently been drawing the government's attention to address the reasons for the decline in remittances. As no timely measures were taken to limit the growing role of the grey market that has practically replaced the exchange companies, it said.

The illegal market offers dollar prices more than Rs 20 per dollar higher than the banking market rate.

As exchange companies faced a serious shortage of dollars, the greenback price increased on the open market to come close to the grey market rate. The grey market attracted remittances.

At the same time, the SBP permitted importers to arrange dollars for their imports. The importers rushed towards the grey market, further strengthening it, and the remittances declined due to the ever-increasing dollar rates in the grey market.

The biggest inflow of USD 5.924 billion was from Saudi Arabia but declined by 16.3 per cent compared to last year. The second highest inflow was from the UAE, which was around USD 4.321 billion, but it also showed a decline of 19.2 per cent.

Cash-strapped Pakistan received the third largest amount of remittances from the UK, which was USD 3.718 billion, and it too shows a decline of 8 per cent compared to the last year.

Other significant inflows were from the USA, with USD 2.824 billion (0.9 per cent up), GCC countries, with USD 2.918 billion (11.5 per cent down) and USD 2.839 billion from EU countries, which showed a decline of 7.7 per cent.

The labour outflow from Pakistan shows a significant increase like the previous year but the declining inflows indicate that widening the price gap of the dollar could be more problematic in the coming months.

The dollar is officially available at Rs 286-287 in the inter-bank market but the grey market offers up to Rs 311-313 per dollar, the report said.

The Pakistan government on Friday unveiled a Rs 14.4 trillion budget for 2023-24 as it battled to fend off a looming default due to shrinking foreign reserves.

It'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.