The Disturbing State of Falling Remittances By Overseas Pakistanis

Remittances by overseas Pakistanis fell by 19 percent in July, according to figures released by the central bank on Thursday, due to the staggering decline in the value of the Pakistani Rupee (PKR) in 2023, along with Rs. 13 lost by the currency in June-July, which is causing some ex-pats to refrain from remitting too much amid lower rupee denominated needs in Pakistan.

The current real estate slump has further pushed expats to avoid sending money home. Pakistan’s property sector moves with the help of the inflow of workers’ remittances since people living abroad typically prefer investing their life savings in this sector.

The unofficial/hawala market exchange rate has continued to stay above Rs. 300 per US dollar, even though the spread between the open and interbank markets has narrowed down in recent weeks.

Economic analyst A H H Soomro told ProPakistani, “People are sending lesser money home due to poorer real estate performance. As well as lower rupee-denominated needs in Pakistan. Someone sending Rs. 100,000 now has to send $330 versus $450 last year. That seems the only plausible explanation as currency has been stable and the open market gap is reduced”.

Meanwhile, currency traders in July reported meager demand in the unofficial market as importers tried to have their containers cleared from ports but many struggled to get a single letter of credit (LC) on the other side via official routes. Some importers obtained items from other countries without opening LCs and opted for the hawala market to meet their needs, and had no choice but to pay higher premiums due to the massive drop in value of the PKR.

Globally, inflation in various developed countries like the United States, the United Kingdom, and Europe, has given expats no other choice but to spend more on themselves to just survive and therefore have less money to send back to Pakistan.

At $2.026 billion in July, inflows in July are the lowest since inflows of $1.990 billion seen in February 2023. Workers’ remittances from Saudi Arabia were down by 16 percent on a year-on-year (YoY) basis, while the inflows from UAE, UK, EU countries, and US were down by 31 percent, 25 percent, 4 percent, and 4 percent respectively.

This reflects the impact of the economic slowdown in advanced economies which has so far failed to back-pedal since Russia went to war in Ukraine, taking a big toll on foreign labor workers struggling with unemployment.

The fall in remittances in July is a bad omen for Pakistan’s economic stability, as well as increasing commodity prices, and reflective slowdowns in host-country economies where ex-pats go to earn a better living.

Overall, highly volatile exchange rates, poor real estate performance, and global economic uncertainties impacted inward remittances to Pakistan in July. With the IMF’s costly bailout and political uncertainty leading up to General Elections in October, we may see a further decline in remittances in the coming months.