September remittances improve slightly but lower than expected

Remittances for September came in at $2.21 billion, according to data shared by the State Bank of Pakistan (SBP) on Tuesday. This figure, while an improvement from last month’s $2.09 billion, was significantly lower than market expectations of $2.4-2.5 billion. 

On a month-on-month basis, remittances rose by 5.3%. However, they declined by 11.24% compared to last year, when remittances stood at $2.49 billion.

The market was expecting remittances to improve following a massive crackdown on exchange rate manipulation in the open market, and the subsequent reduction in the premium between the open and interbank markets.

Rupee’s appreciation

Pakistanis abroad may choose to send remittances through banks, in which case they would become part of the interbank market, or exchange companies, which are part of the open market. Typically, the difference in the rates of the two markets is not very large; under the agreement with the International Monetary Fund (IMF), it cannot exceed 1.25% for more than five days. 

However, between August 28 and  September 4, the difference in the market rates widened to an alarming extent both in absolute and percentage terms — up to nearly Rs 30 per dollar or 8.5%. And before the crackdown was launched in early September, a significant number of foreign exchange dealings, including remittances, were either being done ‘off the books’ in the open market or diverted to the grey market, General Secretary of the Exchange Companies Association of Pakistan (ECAP) Zafar Paracha told Profit in an interview last month. It all changed, however, once the authorities launched a massive crackdown on illegal foreign exchange trade.

On Sep 1, the per dollar interbank rate was Rs 305.46. By Sep 28, this was down to Rs 287.74 per dollar — an improvement of Rs 17.72 per dollar or 5.08%. Similarly, the per dollar open market rate on Sep 4 was Rs 331. By Sep 28, the rupee’s value had improved to Rs 288 per dollar — up by Rs 43 or 12.99%. 

So, why did this strengthening in the rupee not lead to increased inflows of remittances through legal channels? Perhaps the effect is lagged. Fahad Rauf, head of research at Ismail Iqbal Securities, noted that while remittances were lower than expected this month, given that the gap between interbank and open markets has reduced now, they should pick up going forward.

Breakdown of remittances received

According to SBP data, the highest amount of remittances was received from Saudi Arabia at $538.2 million, followed by the United Arab Emirates at $400 million, the United Kingdom at $311.1 million and the United States at $263.4 million. 

Meanwhile, remittances from other GCC countries totalled $248.1 million, while Pakistanis in the European Union sent $269.3 million. 

Overall, total remittances in the first three months of FY24 stood at $6.33 billion, down 19.8% from last year’s figure of $7.89 billion.