According to data from the State Bank of Pakistan (SBP), remittances sent home by overseas workers declined by 12.8% year-on-year to $24.8 billion in the 11 months of the current fiscal year. In May, remittances decreased by 10.4% year-on-year to $2.1 billion, experiencing a 4.4% month-on-month decline. In comparison, Pakistani expatriates sent $2.2 billion home in the previous month of April.
The majority of remittance inflows during the reviewed period came from Saudi Arabia ($524 million), the United Arab Emirates ($335.8 million), the United Kingdom ($306.5 million), and the United States of America ($257.2 million). Analysts attribute the decrease in remittances between July and May to factors such as higher inflation and economic slowdown in host countries, foreign currency cash transfer through overseas Pakistanis, and fluctuating exchange rates between interbank and open markets. Some overseas Pakistani workers have resorted to illegal means to send money home due to the disparity in exchange rates, with the grey market offering more favorable rates for remittances.
The declining trend in remittance inflows is concerning for Pakistan, as the country faces foreign exchange shortages and delays in receiving bailout loans from the International Monetary Fund (IMF).
Following the announcement of the monetary policy decision, tensions have arisen between SBP Governor Jameel Ahmad and Finance Minister Ishaq Dar. While Ahmad stated that Pakistan is not considering bilateral debt restructuring, as mentioned by the finance minister, indicating a commitment to the IMF program before the June 30 deadline, Dar insisted that work on external debt restructuring is ongoing in the background. Ahmad clarified that the majority of the debt is bilateral and multilateral, with significant amounts already paid towards commercial debt and Eurobonds.
Remittances are declining, which negatively impacts the country’s balance of payments. Additionally, Pakistan’s exports have dropped by 12% from July to May, totaling $23.2 billion, mainly due to weak global demand and a lackluster domestic economy. Imports have also decreased by 28.4% due to import policy tightening and other administrative measures.
The current account deficit during July to April decreased to $3.3 billion, less than one-fourth of last year’s deficit, primarily due to policy-induced import contraction offsetting the decline in exports and remittances. The finance ministry has set a target of $6 billion for the current account deficit in the next fiscal year, which exceeds the expected figure of $3.5 billion for FY23. Achieving this target would require arranging foreign financing. Although the current account is showing some improvement, the balance of payments remains a concern due to minimal foreign exchange reserves and the short-term nature of Pakistan’s external debt.
While imports and GDP growth have decelerated, easing pressures on the current account, risks persist due to the country’s limited foreign exchange reserves and short-term external debt, coupled with uncertainties in international commodity prices.
