KARACHI: Remit­tances sent by overseas Pakistani workers declined for the fourth month in a row as inflows dipped year-on-year by 19 per cent in December 2022.

While the government is busy arranging dollars to avert a possible default, the falling remittances have created a further shortage of foreign exchange reserves.

The latest data issued by the State Bank of Pakistan on Friday showed that the remittances in December totalled $2.04 billion compared to $2.5bn in December 2021. Month-on-month, the remittances declined by 3.2pc.

The frequent decline in remittances was not surprising for the financial sector as they have been asking the government and the SBP to stop managing the exchange rate.

In the first 11 months of 2022 about 0.75 million Pakistanis moved abroad mainly for jobs and other purposes like education, but the inflow of remittances has been declining instead of showing an improvement.

Widening exchange rate gap seen as major reason behind decline

It is estimated that if the declining trend persists, the remittances may fall by $4bn over the last year.

Finance Minister Ishaq Dar during a meeting with the IMF in Geneva assured implementation of preconditions set for the resumption of talks.

However, the PML-N-led coalition government, which has a short tenure, is not willing to implement the single dollar rate as demanded by the IMF because meeting this condition will sharply push up the dollar price and further fuel inflation that has already crossed 25pc.

The SBP reserves saw a massive fall of $1.233bn hitting a nine-year low at $4.3bn during the last week. Debt servicing is the biggest problem but zero inflows have made it more difficult for the economic managers of the country to make timely repayments.

“We never properly managed the huge remittances of $135bn in the last five years. Instead, we accelerated the pace of imports that reached a record high of $84bn in FY22,” said Atif Ahmed, a currency expert in the interbank market. He said the government must make policy for the best use of remittances instead of using them for the balance of payments.

The SBP reported the remittances fell by 11pc year-on-year to $14.1bn during the first half of the current fiscal year.

The inflows from Saudi Arabia were still highest with $3.47bn but it declined by 14pc compared to last year. The highest number of overseas Pakistanis live in Saudi Arabia but most of them are in low-paid employment.

For low-paid salaries a higher exchange rate is attractive. Banks offer Rs228 per dollar while exchange companies offer Rs238 but the grey market offers even higher than Rs270. It is believed in the financial circle that this is the main reason for declining remittances.

Remittances from UAE ($2.6bn), GCC countries ($1.63bn) and EU countries ($1.544bn) declined by 13.5pc, 9.7pc and 11.8pc, respectively.

The only improvement was noted from the USA as remittances increased by 2pc to $1.526bn. Another big amount came from the UK but it also lowered by 7.9pcto $1.98bn.

Published in Dawn, January 14th, 2023