Remittances surge 13pc y/y in February as rupee stability boosts formal transfers

KARACHI: Pakistan received $2.2 billion in remittances from its overseas workers in February, up 13 percent from a year earlier, the central bank data showed on Friday, as a stable local currency encouraged more expatriates to use formal channels. In February 2024,

The country received $2 billion in remittances from migrant workers in February 2023. The inflows in February were slightly lower than the $2.4 billion received in January. Remittances fell 1 percent to $18.1 billion in the first eight months of the fiscal year 2023-24.

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.

"Generally, remittances have improved due to better compliance and enforcement by authorities, and elimination of grey market for currencies,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

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 279 per dollar, while in the open market, it is trading at 281 to the dollar.

According to analysts, a month-on-month fall in remittances of 6.2 percent in February occurred because there were fewer days in the month; however, remittance flows were steady when adjusted for the same number of days in January.

But, as the holy month of Ramazan begins next week and there will be an Eidul Fitr festival in April, they expect a rise in remittances.

Remittances inflows during February were mainly sourced from Saudi Arabia ($539.8 million), the United Arab Emirates ($384.7 million), the United Kingdom ($346.0 million), and the United States of America ($287.4 million).

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 $7.9 billion as of March 1 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.

The International Monetary Fund has stated that it will support Pakistan in formulating a new economic programme, if the nation's newly elected government wishes to pursue one. The country’s cash-strapped economy will be supported by the new IMF bailout package if it occurs.

Pakistan’s dollar bonds rallied after the IMF said it will hold a mission for a second stand-by arrangement loan review shortly after the nation forms a new cabinet, according to Topline Securities.

Dollar bonds maturing in April 2031 climbed to the highest since March 2022 at 79.258 cents on the dollar. Securities due 2026, 2051, 2029, and 2027 also increased, comprising the top five performers among the emerging sovereign dollar bonds on Friday. IMF said it looks forward to working with the new government on policies to ensure macroeconomic stability.