Ayesha Saba

The declining trend in remittance inflows over the last several months is a cause of concern for the government amid depleting foreign exchange reserves not enough to cover even three weeks of imports and service the most imminent foreign debt repayments. Talking to WealthPK, Junaid Ahmed, a senior research economist at the Pakistan Institute of Development Economics, said that remittances were an important source of dollar inflows for Pakistan. “In case the declining trend continues in remittances, it can further deepen the balance of payment crisis, pushing inflation further higher.”

He suggested the government take urgent measures to curb inflow of remittances through informal channels, which have emerged of late after the authorities imposed an unannounced cap on the exchange rate, forcing some overseas Pakistanis to send their earnings through the grey market, which offered rates higher than the official channels.  “The government should offer incentives to overseas Pakistanis like increasing the rate of returns on their investments in different instruments at home, making the processes more transparent, and increasing their access to formal financial institutions,” he said.

Junaid Ahmed said the government should promote financial literacy and encourage the use of formal financial services. “This will help families make better use of their remittances and plan for their future financial needs.” “The government can work with banks, non-government organisations, and other entities to educate people about financial planning and budgeting, as well as the importance of saving and investing.” The PIDE economist also suggested the government should also encourage overseas Pakistanis to invest in various sectors such as agriculture, tourism and infrastructure development.

He said Pakistan was currently facing worst financial crisis in its history, and was confronting grave economic challenges that have been exacerbated by political crisis. The local currency has plummeted to historical lows, and inflation has reached to levels not seen in decades. Pakistan’s misery is further compounded by the devastating monsoon flooding in 2022 and global energy crisis resulting from the Russia-Ukraine conflict.

A major source of remittances in Pakistan is the country’s large diaspora in Saudi Arabia, the United Arab Emirates, Kuwait and other Gulf countries. Other countries with significant population of Pakistani workers include the United States, the United Kingdom, Canada and several countries of the European Union.

According to the State Bank of Pakistan, in July-October 2022, remittances fell to $9.9 billion, down 8.6% from $10.827 billion over the same period of 2021. Remittances decreased by 19% to Rs2.04 billion in December 2022 compared with $2.52 billion in the same month of the previous year.  If the declining trend continues, total remittances in FY23, ending in June, would be close to $30bn, quite lower than the $31 billion in FY22.

Credit: Independent News Pakistan-WealthPk