KARACHI: Remitta­nces sent by overseas Pakistani fell below $2 billion in January, showing a 31-month low and resulting in a loss of about $2bn during the first seven months of the current fiscal year (FY23).

The State Bank reported on Monday that the remittances stood at $1.89bn in January, the lowest since May 2020, showing a decline of 13 per cent year-on-year and 10pc month-on-month.

The country is in dire need of dollars, but remittances during the current fiscal year kept declining. Pakistan depends more on remittances for dollars than exports.

During July-Jan FY23, the country received a total inflow of $16bn, compared to $17.988bn during the same period last fiscal year.

It shows a decline of 11pc and the country lost $1.982bn during seven months in terms of dollars.

The government is struggling hard to get a $1.2bn IMF tranche to avoid default. The $1.98bn loss was the result of the government’s strategy to control the exchange rate.

Country lost about $2bn in seven months

Economists and analysts blame the government’s financial team, including the State Bank, for this loss which was an outcome of the artificial management of the exchange rate. The finance minister particularly was not ready to see a free exchange rate just to keep the dollar on the lower side.

However, this proved a miscalculated move which created a big gap in dollar rates in two markets — interbank and open market. The open market was also forced to manage the dollar rate much 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 disappeared from the open market, while banks also lost liquidity. Opening of letters of credit was almost closed and goods worth hundreds of millions of dollars were stuck up at ports.

The government, under pressure from IMF, uncapped the exchange rate in the last week of January and the dollar shot up as high as Rs277 in interbank and Rs283 in the open market. However, the new rates beat the grey market prices and now the exchange rate stability looks visible, for now.

Bankers said that since the exchange rate is moving at around Rs270, the panic selling of export proceeds was witnessed and remittances also started increasing in February. Exporters have the permission to keep the proceeds abroad for up to six months, which provides them an opportunity to sell their holdings when the dollar rises to the highest level.

The highest remittances in a single month were noted in April 2022, at $3.124bn.

Due to higher inflows, bankers believe the remittance in February would be more than $2bn. The open market also reported inflows of higher liquidity and has been depositing up to $10m per day in banks. Earlier, the open market remained dry for more than three months.

Data shows that the inflow from Saudi Arabia was the highest with $3.892bn during July-Jan FY23, but it declined by 15.1pc compared to the previous year.

Inflows from the UK and the UAE were $2.314bn and $2.873bn, showing a decline of 6.4pc and 15.2pc, respectively.

The inflows from the US stood at $1.753bn (2.8pc up), GCC countries at $1.878bn (9pc decline) and EU countries at $1.79bn (10pc decline).

Published in Dawn, February 14th, 2023