A drop of home remittances in July, when the inflow was $1.3 billion against $1.663 billion in July 2014-15, has prompted money changers and their supporters to call for a devaluation of the rupee which. They also feared that a reduction in inflow of remittances from the Middle East and the Gulf countries would put pressure on the already weak rupee.
However, the offcials of the State Bank of Pakistan (SBP) rejected the depreciation demand on the back of the country’s forex reserves, which are at an all time high of $23 billion.
“We do not see significant downturn in the remittances inflow,” a senior SBP officer said. This should check the reaction of the money changers regarding the devaluation.
“The remittances totalled $19.9 billion all-time high in 2015-16, which ended on June 30. The inflow was 6.3 per cent higher than government target of $19 billion.”
The key sources of this high cash inflow were Saudi Arabia and the UAE. “We are proud of this performance by our overseas Pakistanis and their hosts Saudi Arabia and the UAE for hosting our workers. We are sure this cooperation and deployment of all Pakistani workers will go on there,” Finance Minister Ishaq Dar said.
The remittances during FY-15 were $18.72 billion. The forecast for the current FY-17 is 10 per cent higher. But, because home remittances sent by Overseas Pakistanis, particularly from Saudi Arabia had ebbed away a bit in July, the currency dealer started hoping for a devaluation of the rupee.
Any change in the rupee parity against the greenback or other hard currencies is of direct interest especially to the Overseas Pakistanis because it determines how many rupees they and their families back home will get in exchange for each dollar they send from abroad.
The home remittances coupled with exports are the key source of rising Pakistani reserves. Hence the question arises, what will be the health of the rupee if both exports and home remittances are down or stagnate?
Pakistan overall economy is hit by domestic energy outages, which have eaten up two per cent of annual GDP; the EU and international financial crisis; and stagnate Pakistani exports at around $19 billion for three years.
Commerce Minister Khurram Dastgir said: “As a result of steps we are now taking, we hope our exports will rise in the coming months.”
Zeeshan Afzal, executive director, Insight Securities, said the economic slowdown in the developed world, the lay offs in the Middle East and the tight regulatory regime in the US on cross border fund transfers has taken a heavy toll on the remittances’ inflows.
“The rupee has been fairly stable in the past 12 months – from August 11, 2016 to August 12, 2017 – despite the currency depreciation in the region. During this period the rupee fell 2.7 per cent. By comparison the Indian currency depreciated 4.5 per cent against the dollar, Sri Lankan currency fell 7.6 per cent and Bangladesh currency was down 0.1 per cent. Now the analyst expect the rupee will depreciate two to four per cent during FY-17,” he said.
“We are closely monitoring the inflow of home remittances, particularly those from Saudi Arabia and the GCC countries. We are also watching the effects of the international recession and the impact of low oil prices on the Gulf countries’ deployment of the Pakistani manpower,” a spokesman of the SBP said.
Close to 65 per cent of all remittances are contributed by Overseas Pakistanis working in the Middle East. Saudi Arabia was No.1 contributor with $6 billion in FY-16 up from $5.6 billion in FY-15, followed by the UAE with $4.36 billion.