The remittances sent home by expat workers to Pakistan fell to a 31-month low in January 2023, slipping below the $2 billion mark, according to the State Bank of Pakistan (SBP).
The remittances recorded at $1.89 billion, a decrease of 13% compared to the same month in the previous year and a drop of 10% compared to December 2022, mainly due to a cap imposed to stabilise the rupee against the dollar by the government which prompted illegal transfers through hundi, hawala, and other channels.
Remittances dropped 9.9% month-on-month and 13.1% year-on-year, the central bank data showed. With a cumulative inflow of $16 billion during the first seven months – July to January – of FY23, the remittances decreased by 11% compared to the same period last year.
The dollar cap was removed by the end of January as per International Monetary Fund (IMF) conditions to pave the way for the release of the critical $1.1 billion loan tranche.
Remittances during January 2023 were mainly sourced from Saudi Arabia ($407.6 million), United Arab Emirates ($269.2 million), the United Kingdom ($330.4 million) and the United States of America ($213.9 million).
The low inflows have increased the country’s reliance on foreign debt, which has already mounted beyond affordability. In the first seven months of the current fiscal year (July-January 2023), remittances dropped 11% to $16 billion compared to $18 billion in the same period last year. Experts believe the inflows will improve in the coming months after the devaluation of the rupee to around Rs270 against the US dollar in the interbank market. The devaluation had been hovering around Rs225-230/$ until January 24, 2023. Additionally, overseas Pakistanis are expected to send higher amounts to their relatives during the upcoming month of Ramazan due to the historical high inflation. Historical trends show that remittances usually grow during Ramazan and Eid festivals.
The significant drop in remittances through official channels such as banks and exchange companies is believed to be due to a portion of overseas Pakistanis opting to send funds to their relatives through informal and illegal channels, such as hawala-hundi. These informal channels are offering significantly higher prices, ranging from Rs250-260/$ compared to the Rs225-230/$ offered through formal channels. The decline in workers’ remittances has raised concerns about the country’s economic stability and the need for the government to find alternative sources of financing.
