KARACHI: Remittances fell 2.79 per cent to $15.59 billion in the first 10 months of the current fiscal year, the State Bank of Pakistan (SBP) reported on Wednesday.

The current flow of remittances is insufficient to bridge the widening trade deficit, which is now higher than the country’s export proceeds.

Pakistan received remittances amounting to $16.04bn in July-April of the preceding fiscal year.

Although remittances registered a decline during the 10 months, they are said to be higher than what many analysts expected. They feared a drastic drop in remittances due to a precarious political and economic situation in the Middle East.

Inflows dropped from the Middle East, particularly Saudi Arabia, during the period under review. The 10-month decline in remittances was $448 million. The decrease in inflows from Saudi Arabia alone was $320m.

Inflows from the United States and United Kingdom declined 5.8pc and 9pc, respectively, although their combined contribution to remittances was $3.77bn.

Remittances from Saudi Arabia ($4.51bn), UAE ($3.47bn) and GCC countries ($1.88bn) collectively contributed $9.86bn. Inflows from this region constitute more than 63pc of the total remittances.

Declining inflows pose a challenge to the economy as the trade deficit is higher than exports recorded in the first nine months of 2016-17.

The present and past governments found it easy to bridge the trade deficit through remittances, which continuously rose for the last 10 years. As a result, the government became complacent and made no strategy to deal with declining inflows.

The oil price slump that drastically cut the income of oil-rich countries, like Saudi Arabia, gave rise to the fears of massive job cuts for overseas Pakistanis. So far, job cuts in Saudi Arabia have remained at a manageable level.

However, the record-high trade deficit of $23bn in nine months eroded the confidence of policymakers who have been depending on remittances and foreign exchange reserves accumulated through borrowing from the international market.

The country’s reserves have been falling at a monthly average of half a billion dollars since October 2016.

This has forced the government to borrow more heavily.

The government has failed to increase exports. It has held the international market responsible for poor exports, citing lack of demand and low prices.

However, neighbouring countries, like India and Bangladesh, increased their exports during the same period. Bangladesh has even set an export target of $50bn for 2021.

Published in Dawn, May 11th, 2017