The State Bank of Pakistan (SBP) has unveiled encouraging data indicating a flicker of hope for the Pakistani economy. Overseas Pakistanis’ who sent remittances, which is a lifeline for many families back home, have shown signs of improvement, offering a glimmer of optimism. June 2023 witnessed a delightful 3.9% month-on-month increase in remittances, reaching $2.2 billion, a modest rise compared to May 2023’s figure of $2.1 billion. Though concerns persist, the fact that remittance flows are on an upward trajectory brings a much-needed dose of cheer.
However, the year-on-year comparison reveals a less favorable picture, with remittances in June 2023 reflecting a 22% decline compared to the same period in the previous year. This statistic should prompt us to take a closer look at the factors contributing to this downturn and explore potential remedies for a rebound.
Delving into the broader landscape, the cumulative remittance inflows for the fiscal year 2022-23 tallied up to $27 billion. While this figure may seem substantial, it signifies a worrisome 13.6% decline from the previous fiscal year, representing a significant loss of over $4.25 billion. Experts attribute this downturn to a government decision that inadvertently fueled the growth of an informal grey market. By maintaining the US dollar rate at 220 last year, the authorities unintentionally diverted a considerable portion of remittance flows away from formal channels.
Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, offers valuable insights into this complex web. He underscores the decline in remittance inflows from Gulf countries, a surprising trend given their economic growth outpacing Western nations. The emergence of informal channels appears to have played a role in diverting remittances. However, Rauf’s optimism shines through, as he suggests that bridging the gap between interbank and informal markets could help revitalize formal remittance channels. Furthermore, with an expanding overseas Pakistani community, the potential for improved remittance figures looks promising.
The journey through the fiscal year has been riddled with challenges, as evidenced by the sluggish remittance inflows experienced in January and February 2023. Uncertainty in the currency market and significant discrepancies between the interbank and black market exchange rates dampened remittances, with figures dipping below the $2 billion mark during these months. Yet, a glimmer of hope emerged as the unofficial cap on the exchange rate was lifted, propelling the rate to Rs 269 against the dollar by February 13, 2023, compared to Rs 230 at the end of January 2023. This favorable shift, coupled with the customary surge in remittances during the holy month of Ramazan and the festivities of Eid, contributed to a noticeable rebound in remittances during March 2023.
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Turning our attention to the breakdown of remittances, we find intriguing patterns among different regions. Overseas Pakistanis in Saudi Arabia demonstrated their unwavering support by sending a substantial amount of $515.1 million in June 2023. However, this figure represents a decline of nearly 24% compared to the same period the previous year, reflecting potential challenges faced by this group. Meanwhile, remittances from the United Arab Emirates (UAE) experienced a substantial downturn of 35%, plunging from $499.7 million in June 2022 to $324.7 million in June 2023.
Across the Atlantic, remittances from the United Kingdom also experienced a dip, with the June 2023 figure standing at $343 million, a decline of 25% compared to June 2022. Additionally, remittances from the European Union faced a marginal decrease of 3%, amounting to $277.6 million in June 2023. Across the vast expanse of the United States, overseas Pakistanis sent $272.3 million in remittances during June 2023, experiencing a modest year-on-year decline of 5%.
While challenges persist, the slight recovery in June 2023 brings a welcome ray of hope to the remittance landscape. Efforts to address informal channels and bridge the gap between interbank and informal markets offer promising avenues for sustained improvements. As the Pakistani economy continues to evolve, the resilience and unwavering support of overseas Pakistanis remain pivotal, bolstering the nation’s growth and prosperity. With collective determination, a brighter future for remittance inflows lies within reach.
