Remittances sent by overseas Pakistanis declined by 14 percent in November, according to data released by the State Bank of Pakistan (SBP), with economists pinning the blame on the exchange rate differential between the interbank and open market.
“During November 2022, workers’ remittances recorded an inflow of $2.1 billion,” read a brief statement of the central bank that accompanied the data. It said that inflows had fallen by 9.6 percent during the first five months of the current fiscal year as compared to the previous year, going from $13.286 billion to $12 billion. Similarly, it said, there was a 5 percent decline between October and November 2022—going from $2.215 billion to $2.1 billion.
According to the data provided by the SBP, the largest declines in remittances were recorded from Gulf states, with Saudi Arabia posting a 12.7 percent reduction and the U.A.E. 11.5 percent. Other major sources of remittances also posted declines, with the U.S. inflows reducing by 9.4 percent and the U.K. 7.3 percent.
Economists have blamed the decline on various factors, including a global slowdown and better investment options elsewhere. However, they have warned, the biggest factor is likely the persistent differential between currency exchange rates in the interbank and open markets. Currently the rupee is trading around 224 to the U.S. dollar in the interbank against 250+ in the open market. This is encouraging overseas Pakistanis to avail informal channels such as hundi and hawala to remit funds so they can secure higher exchange rates.
Experts maintain the government must cease its attempts to artificially prop up the exchange rate and adopt a market-oriented regime to encourage overseas Pakistanis to avail formal banking channels once more. However, this carries its own risks, as the country recently revealed its foreign exchange reserves had hit a four-year low, which discourages the country from spending more money for imports.