Remittances top $3bn in October

KARACHI: Remittances to Pakistan surged to a four-month high in October, indicating that contributions from workers abroad continue to support the country’s sluggish economy by stabilising the local currency and containing the current account deficit.

In October, the amount of money sent by overseas workers reached $3.1 billion, the highest level since June, data from the State Bank of Pakistan showed on Friday.These inflows rose by 6.7 per cent month-on-month and 23.9 per cent year-on-year in October. Remittances surged to $11.8 billion in the first four months of the current fiscal year, up 34.7 percent from the same period last year.

“A main reason for the increase in official flows is the reforms, which have curbed illicit trade in FX. Also, falling inflation globally is helping overseas Pakistanis remit more money into Pakistan,” said Mustafa Mustansir, head of research at Taurus Securities.

“The incentives introduced by the SBP for remitters are also helping increase official flows,” Mustansir added. “I think the momentum of remittances will continue in the months ahead,” he said. Diaspora cash is a vital source of external inflows, helping to improve foreign exchange reserves, stabilise the exchange rate, and finance the current account deficit. In September 2024, the current account recorded a surplus for the second consecutive month, reducing the total deficit to $98 million in the first quarter of this fiscal year. The ongoing increase in remittances is expected to help decrease the trade deficit, setting the stage for a potential current account surplus in October.

Per Awais Ashraf, director research at AKD Securities Limited: “Increase in SBP incentives for exchange companies to enhance remittances, along with the higher reimbursement of telegraphic transfer (TT) charges on home remittances by the central bank and increased emigration over the past three years, have played a key role in boosting remittances. Additionally, the maintenance of reduced margins between the interbank and open market rates is contributing to the redirection of funds through formal channels.”

As of November 1, the State Bank of Pakistan’s reserves stood at $11.17 billion, sufficient to cover more than two months’ worth of imports.The Pakistani rupee has appreciated by 2.6 per cent in FY24 and by 0.3 per cent against the dollar so far this fiscal year, thanks to external account stability and higher inflows. Analysts predict that the rupee will trade at 277-282 per dollar by June and at 295-300 by June 2026.

According to analysts, Pakistan’s external financing needs will remain significant in the foreseeable future, heavily reliant on bilateral flows and debt rollovers. A surge in foreign direct investment to address the external funding gap is unlikely, and soft global demand could negatively impact exports.