Remittances sent by Pakistanis abroad reached a 31-month low of less than $2 billion in January, culminating in a loss of roughly $2 billion in the first seven months of the current fiscal year (FY23).
The State Bank said on Monday that remittances fell by 10% from month to month and 13% from year to year in January, reaching $1.89 billion, the lowest level since May 2020.
Despite the urgent need for funds, remittances decreased over the current fiscal year. Exports are less important to Pakistan than remittances for cash. Inflows into the nation totaled $16 billion from July through January of FY23, down from $17.988 billion during the same time period in FY22.
The country lost $1.982 billion during the course of seven months, an 11 percent reduction. To prevent default, the government is working extremely hard to obtain a $1.2 billion IMF tranche. The government’s plan to manage the currency rate led to a $1.98 billion loss.
Economists and others hold the State Bank and the government’s finance staff accountable for this loss, which was brought on by the artificial exchange rate management. A free exchange rate was specifically opposed by the finance minister because it would have kept the dollar from rising too much.
This turned out to be a poorly considered move, leading to a significant difference in dollar rates between the interbank and open markets. Additionally, the dollar rate had to be controlled on the open market substantially below the “grey market.”
When the dollar was at Rs230 in the open market, it was selling at Rs270 and more in the grey market. The dollar vanished from the open market, and banks experienced liquidity loss. Letters of credit were almost completely opened, and hundreds of millions of dollars worth of cargo was being held up at ports.
The dollar surged to as high as Rs. 277 in interbank and Rs. 283 in the open market when the government, under pressure from the IMF, removed the exchange rate cap in the final week of January. However, the new rates beat the grey market prices and now the exchange rate stability looks visible, for now.
According to bankers, because of the fluctuating exchange rate of roughly Rs270, export revenues were sold in a panic in February, and remittances also began to rise. Exporters are allowed to keep the money they get abroad for up to six months, giving them time to sell their assets when the dollar is at its peak level. The highest monthly remittances were $3.124 billion in April 2022.
Bankers predict that the remittance in February will exceed $2 billion due to stronger inflows. Additionally, the open market reported increased liquidity inflows and has been depositing up to $10 million per day into banks. The outdoor market was previously deserted for more than three months.
