Remittances Surge 48% in July Amid Currency Smuggling Concerns

Record Increase in Remittances

Remittances from overseas Pakistani workers surged by 48% in July 2024 compared to the same month last year, reaching $2.995 billion, according to data from the State Bank of Pakistan (SBP). This marks a significant increase from $2.029 billion in July 2023. Analysts view this jump as a positive indicator for the government amidst ongoing political and economic challenges.

Month-on-Month Decline

Despite the year-on-year growth, July’s remittance inflows saw a decline of $153 million, or 5%, compared to June 2024, which recorded $3.158 billion in remittances.

Concerns Over Grey Market

Currency dealers have raised concerns about the resurgence of the grey market, which they believe is diverting a substantial portion of remittances. It is estimated that nearly $500 million is being funneled out of official channels monthly, threatening the country’s foreign exchange reserves.

Impact of Smuggling on Foreign Exchange Reserves

In FY23, Pakistan experienced a loss of about $4 billion in remittances due to illegal dollar smuggling to Afghanistan and Iran. Although a crackdown in September 2023 temporarily addressed the issue, recent reports suggest that smuggling has resumed. Smugglers are transporting dollars to Afghanistan and Iran, where they are sold at a premium. In Dubai, remitters can earn an additional Rs5 per dollar compared to the official rate, incentivizing further diversion.

Overall Remittance Trends and Economic Impact

Pakistan received $30.2 billion in remittances in FY24, up 11% from the $27.33 billion in FY23. However, currency experts warn that remittances will be critical this year due to reduced export revenues. The textile sector, which constitutes over 50% of the country’s exports, has seen a reduction in operations due to high electricity costs, new taxes, and record interest rates, leading to the closure of 30% of the industry.

Call for Lower Electricity Prices

The trade and industrial sectors have been urging the government to lower electricity prices, arguing that high production costs are making it difficult to stay competitive internationally. Despite a recent reduction in the central bank’s policy interest rate to 19.5% from a peak of 22%, high rates have persisted throughout FY24, compounding the challenges faced by exporters.