By Abrar Saeed
ISLAMABAD, Oct 28 (INP-WealthPK): Despite continued surge in remittances from overseas Pakistanis, pressure on Pakistan’s foreign exchange reserves is mounting on account of soaring import bill and rupee devaluation.
Overseas Pakistanis sent the highest-ever $8 billion remittances during the first quarter of the current fiscal year, registering a growth of 12.5 percent over the same period last year.
The State Bank of Pakistan (SBP) reported that with inflows of $2.7 billion in September, workers’ remittances continued their strong momentum and remained above $2 billion since June 2020 which has helped cushion the mounting pressure on foreign exchange reserves.
“This is the seventh consecutive month when inflows are recorded around $2.7 billion on an average,” said the SBP.
In terms of growth, remittances increased by 17 percent in September compared to the same month last year. Remittances in September are 0.5 percent higher if compared with August inflows.
In the last fiscal year, remittances witnessed growth of 27 percent year-on-year to $29.4 billion due to a variety of factors including repatriation of overseas Pakistanis’ savings in the host countries. Roshan Digital Accounts (RDAs) that enabled them to invest foreign earnings into Pakistan’s debt and equity markets through local bank accounts also increased remittances inflow.
Another reason for this spike in remittances is the repatriation of a large number of overseas Pakistanis who had lost their jobs and returned with their whole savings. So instead of over-relying on this growth in remittances, the financial planners should devise a strategy accordingly to pull the economy out of the prevailing situation, as when the flow of remittances would slow down, as predicted by the economists, in coming months, the pressure on economy would be enormous.
Rupee has lost 10.1 percent value against the US dollar in less than four months, coming down to 173.46 a US dollar on October 20 from 157.54 on June 30. This would have its impact everywhere in the economy, especially on the import bill.
The first quarter of current financial year has witnessed increase in merchandise imports by $17.473 billion as compared to $10.63 billion during the corresponding period of last fiscal year, reported the SBP balance of payments statement. Merchandise exports rose to $7.241 billion from $5.354 billion, but massive imports are the main reason behind a $3.4 billion current account deficit in the first quarter of current fiscal year against a surplus of $865 million during the same period of last fiscal year.
Data from the PBS showed the reason behind hike in the import bill. During 1Q FY21-22, imports of transport sector witnessed surge by 170 percent, followed by petroleum 97 percent, agricultural and chemicals group 77 percent, textiles 75 percent, metals 42 percent, machinery 35 percent and food items by 38 percent. The main reason behind increase in imports is hike in the prices of these commodities in international market and sharp depreciation of rupee against the US dollar. Rise in imports of petroleum and food items can be attributed more to their rising international prices and less to higher domestic demand.
The growth rate of remittances can also slide this year because of the lagged impact of lower manpower export in 2020 and 2021. In 2019, 625,203 Pakistanis had gone abroad on work visas, according to the Bureau of Emigration and Overseas Employment. In 2020, the number fell to 224,705 — and came down further to 135,653 in eight months of 2021.
There is little hope for a big jump in manpower export from Pakistan in the coming months because traditional host countries of the Pakistani diaspora are not welcoming workers as generously as in the past due to their own economic issues.
Strong growth in foreign remittances was among the positive indicators in domestic economy. “If the remittances would fall then where will we stand?” economist Dr Shahid Hasan Siddiqui said.
Over-reliance on RDAs is also unwise. RDAs basically provide overseas Pakistanis a platform to park part of remittances for portfolio investment in debt and equity markets and in the housing sector. Since the amnesty scheme for investment in housing ended in June, forex inflow meant for this area is drying up.
So, the economic wizards are required to formulate a policy which instead of completely banking on foreign remittances should focus on sustainable growth with enhanced exports and curtailed of imports, as it would be the only way to bridge the yawning balance of payment gap and also bring depreciation of rupee against dollar in control.