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Tuesday March 19, 2024

EIU sees zilch impact of remittances growth on current account

By Our Correspondent
November 16, 2018

KARACHI: Weak rupee-driven sturdy growth in remittances is not going to give a much-needed respite to fragile current account position, but a potential IMF bailout will keep the balance of payment crisis at bay, a British think tank says.

“Crucially, high remittance inflows will not prevent a widening of the current account deficit this year, which we estimate at $18.3 billion, the equivalent of 5.8 percent of GDP,” the Economist Intelligence Unit (EIU) said in a report on Thursday.

“However, we expect that an IMF (International Monetary Fund) bailout program that is likely to begin in early 2019, along with supplementary loans from bilateral donors, will allow Pakistan narrowly to avoid a balance-of-payments crisis.”

Pakistan’s cash-yearning government is currently negotiating with a visiting IMF’s team to discus modalities of the country’s possibly 19th loan program with the Washington-based lender. The country completed its last three-year IMF loan program of $6.6 billion in September 2016. While an estimate of six to eight billion dollars of loan is doing round in the official circle, the government is yet spill the beans about the real monetary requirements after the country managed to get three billion dollars of external account’s support commitment from Saudi Arabia. Earlier the finance ministry said it would receive the first installment of one billion dollar during the ongoing week, which is urgently needed to arrest depletion of foreign exchange reserves on debt repayments and import bills. Foreign exchange reserves fell more than 40 percent since the start of the year and plummeted to the level, which is only sufficient to cover less than two months of import and foreign debt payments. The EIU sees a timely rescue from Pakistani expatriates who are pouring cash back home to leverage benefits of rupee depreciation and international oil price hike.

“October was the second month this year when remittances touched the $2 billion mark – the first was August – higher than the average monthly remittances of around $1.7 billion during the first nine months of 2018,” the research and advisory group said. “This development is in line with our expectation that remittances in 2018 will increase from their 2017 levels.” The central bank’s latest data showed that inflows of workers’ remittances increased 21 percent year-on-year in October.

The EIU said a key driver for the increase in October inflows is the weakening of the rupee during the past year with the latest steep depreciation wiping off 7.5 percent of the local currency’s value against the US dollar in early October. The rupee lost around 20 percent since December last year.

“A weak local currency is likely to have made it more attractive for expatriate Pakistanis to remit higher amounts,” the unit said. “Higher inflows this year are also likely to have been driven by rising oil prices and improved economic conditions in Gulf countries, home to the majority of Pakistani overseas workers.” Remittances from Saudi Arabia – the single largest source for Pakistan – remained solid, posting 7.3 percent year-on-year growth in October. “With global oil prices expected to rise slightly further in 2019, we continue to expect strong remittances in 2019,” the EIU concluded.