KARACHI, Aug 20: Home remittances from the US — or money sent back home by expatriate Pakistanis living in America — fell to $79.5 million in July 2003 from $102.4 million in July 2002. At the same time remittances from the UAE also fell to about $48 million from $58.3 million.
Senior bankers say this huge fall in remittances — 22 per cent in case of the US and 17.6 per cent in case of the UAE — has not come as a surprise to them. Total remittances of $307 million received in July 2003 was also slightly lower than in July last year.
“We were anticipating that the remittances would fall in July and we still fear that the declining trend may continue,” said treasurer of a foreign bank. He said the rising trend of over-invoicing of exports that in turn had widened the spread between the official and open market exchange rates was the root cause of the fall in the remittances.
The country-wise breakup of home remittances — posted on the SBP website — shows that remittances from Saudi Arabia rose to $60.7 million in July 2003 from $44.7 million in July last year. Likewise remittances from the UK and Germany went up to $21.8 million from $17 million and to $8.6 million from $1.6 million respectively.
Traditionally the US and the UAE have been two major sources of inflow of home remittances primarily because Pakistanis live in large numbers in these countries — and money transfer from there is easy.
In fiscal year July/June 2002-03 overseas Pakistanis living in the US sent back home $1.23 billion or 30 per cent of total $4.23 billion home remittances. And those living in the UAE sent home $838 million or about 20 per cent of the total remittances.
This means the remittances from the two countries combined accounted for half the total remittances received in the last fiscal year. “This makes the fall in remittances from the two countries a real source of concern for us,” admitted a State Bank official. But he declined to comment on what had caused the big fall. “We are analyzing the statistics at the moment and cannot say anything.”
Earlier this month the SBP took action against a money changer and some foreign exchange companies involved in currency smuggling and under-declaration of export of third currencies. In addition to that NBP Exchange Company — a subsidiary of state-run National Bank — sold US dollars at artificially low rates booking losses in its books. As a result the spread between the official and open market exchange rates that had widened in the wake of a rising US dollar narrowed to some extent.
But since the exporters continued over-invoicing the exports — and still continues — to fuel the demand for the dollar in the open market making it difficult to lower the spread further. The spread between the official and open market exchange rate is currently at 30-35 paisa a dollar. But that is the gap between the spot value of the US unit in the official and open market.
“The real spread that has started luring overseas Pakistanis to use the open market again for remitting money back home is much bigger,” said a senior executive of an exchange company. He said hundiwalas — or people engaged in illegal transfer of money are offering a premium of Rs1.10 a dollar over the spot value of the US unit in the open market. That is to say if the dollar is selling at Rs58.15 in the open market those transferring dollars illegally from the USA or the UAE are getting a rate of Rs59.25 a dollar. “The quickest possible delivery is an added service,” he said.
Hundiwalas are known for the quickest delivery of the money transferred to Pakistan from any part of the world. “Literally it takes them hours to pay you the rupee equivalent of the foreign currency your friend or relatives gives to a hundiwala abroad,” admitted head of a foreign exchange company. “Despite all their tall claims banks are still far behind hundiwalas in terms of quick service.” Money changers and officials of foreign exchange companies say in certain cases people get money in advance in Pakistan and the hundiwala later claims its equivalent in foreign exchange from overseas Pakistanis.
Money changers and bankers and officials of exchange companies all say the hundi premium was very negligible a few months ago adding that it crept up only after over-invoicing of exports started.
When an exporter over-invoices an export consignment he has to buy dollars from the open market to the extent of over-invoicing to cover up this crime. So if a hundred million dollar over-invoicing takes place in a month the demand for the dollar in the open market goes up by more or less $100 million. But the extra demand for the dollar in the open market may not see an increase equivalent to the amount of over-invoicing if the exporters cover up over-invoicing through their foreign currency accounts in the banks.