KARACHI: Remittances from overseas workers jumped 27.9 percent year-on-year in April to $2.81 billion, boosted by inflows from Saudi Arabia, the United Arab Emirates, the UK, and the US, the central bank said on Thursday.
However, on a monthly basis, remittances fell 4.8 percent to $2.81 billion, compared to $2.95 billion in March.Analysts said the seasonal surge in remittances in March was primarily due to the holy month of Ramadan and the Eid ul-Fitr festival in April. During that period, overseas workers tend to send home additional funds to support the religious festivities.In the first 10 months of the current fiscal year, remittances rose 3.5 percent year-on-year to $23.85 billion, the State Bank of Pakistan (SBP) said.
Experts surmise that the main cause of the rise in remittances year on year is the decline in the grey market's activities because of the stable rupee, which deterred expatriates from using illegal non-banking means to send money home.
Workers who transfer money home through unofficial means receive more local currency when exchange rates in the grey market, sometimes referred to as hawala, are greater than the official exchange rates for both countries.
The rupee plunged to a record low of 307 against the US dollar in the interbank market on September 7. But since the government tightened its clampdown on illegal dollar flows in October, the currency stabilised, the exchange rate gap between the interbank and kerb markets narrowed, and Pakistan's remittances have been getting better.In the interbank market, the rupee is currently trading at 278 per dollar, while in the open market, it is trading at 279 to the dollar.
“Remittances have increased due to the diversion of flows from hawala/hundi to formal channels, as the spread has now shrunk to 1-3 percent, compared to more than 10 percent in the same period last year,” said Awais Ashraf, Head of Research at Akseer Research.
Pakistan relies heavily on remittances as a source of non-debt generating inflows for supporting its foreign exchange reserves. The State Bank of Pakistan's reserves have stood at $9.1 billion as of May 3 and are now enough to cover about two months' worth of imports, but they are still low, and for at least the next few years, reserves will not be sufficient to meet predicted external financing needs.
Meanwhile, Saudi Arabia was the largest source of remittances, with inflows of $712.01 million, up 45.4 percent from a year ago. The UAE was the second biggest contributor, with remittances of $542.31 million, up 42.7 percent year-on-year.Remittances from the UK and the US also increased, by 14 percent each, to $403.21 million and $329.19 million, respectively. Inflows from EU countries rose 15.7 percent year-on-year to $297.95 million.