KARACHI: The crackdown against illegal currency business has failed to substantially improve the inflow of remittances in September as was anticipated by the economic managers of the country and the State Bank of Pakistan (SBP).

The central bank on Tuesday reported that remittances rose just a little over 5 per cent month-on-month in September against the expectations of a 25pc hike.

However, the remittances fell by 20pc in the first quarter compared to the same period last year.

The financial sector was enthusiastic about the positive outcome of the crackdown against illegal currency business and smuggling while the bankers were reporting higher inflows from overseas Pakistanis.

A marginal rise of 5.3pc was noted over August

However, the September inflows stood at $2.206 billion compared to $2.094bn in August, an increase of $112m or 5.3pc. The crackdown was initiated in the first week of September.

“The outlook of the country did not change with the crackdown. The country remained a risky place for the investors and the remitters,” said an analyst.

A day earlier, the Exchange Companies Association of Pakistan (ECAP) reported that they sold up to $900 million to banks during the last four weeks. The ECAP believes it was the direct impact of the crackdown.

“With the disappointing inflows of remittances, the exchange rate trend may reverse in a few days,” said the analyst, adding that there is a clear sign that the rupee is overvalued.

Bankers said that so far there is no liquidity crunch in the interbank market because of large sales of dollars by the exporters. However, the banks have sold out the dollars as forward booking for the next two months which means the inflows of export proceeds have already been consumed.

“If not October, then November could see the dollar appreciating,” said a senior banker dealing with the currency trade.

He said the international banks offer up to 6pc returns which could be a good reason for low remittances. If Pakistani banks even offer 21pc return it will be negative due to 30pc inflation, he said.

The remittances in September declined by 11.3pc or $281m compared to September 2022.

The remittances declined by a massive $1.6bn or 19.8pc to $6.329bn during the first quarter of FY24 compared to $7.897bn in the same period last year.

This must be a serious concern for the government since the remittances contracted by a huge $4.2bn in FY23. The first quarter loss of $1.568 could surpass the losses if the trend continues in the remaining months of this fiscal year.

The remittances from almost all destinations fell during the first quarter of FY24. The biggest decline was noted from UAE as inflows fell by 30pc to $1.023bn.

The inflows from the USA, UK and Saudi Arabia fell by 11.6pc ($767m), 13.2pc ($947m) and 22pc ($1.516bn), respectively.

Published in Dawn, October 11th, 2023