One can only hope that the resident “wizard” in Q Block has given some thought to the 19% year-over-year fall in December remittances. The nation required the remittances to bolster its finances due to falling exports and intense pressure on the country’s scant foreign exchange reserves. However, Pakistanis living abroad sent home less money, in part because of our finance minister’s unhealthy fixation on maintaining the currency rate.
Market observers claimed that individuals have begun favouring illegal hundi and hawala networks over the absurd official exchange rate maintained by the State Bank because of their operators’ superior conversion rates, despite the fact that they are murky and dishonest.
The general trend in remittances, which have decreased each month for the past four months, appears to confirm that hypothesis. One simply needs to consider Pakistan’s current situation to understand how crucial these remittances are to the nation.
Remittances during the just-completed six-month period of July–December 2022 were $14.1 billion, which is $1.7 billion less than during the same time last year ($15.8 billion). Less than 4.5 billion dollars are currently in the State Bank’s own reserves.
In order to prevent the last of the remaining dollars from leaving the country, it has been turning down requests to grant letters of credit, including for essential products and commodities. In this situation, it would appear that the “lost” $1.7 billion could have given the government the much-needed breathing room. One cannot hold foreigners accountable.
Due to the challenging economic climate, remitters may be keeping more of their earnings for personal use and transferring less to Pakistan. However, they cannot be expected to agree to receiving less rupees for their dollars than what the free market is ready to offer them for the sums they do send.
Due to this, a large number of exporters (both of goods and services, i.e. independent contractors) also keep their money stored abroad until they are certain they will receive a better rate. Ishaq Dar’s dollar peg is harming the economy in the long run by causing these distortions.
The release of the tensions that have built up as a result of it is expected to strike another fatal blow to the already frail economy if it fails, which some claim is inevitable.