Dwindling Remittances from the Pakistani Diaspora
Recorded remittances fall by ~16% over the last year, SBP.
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Pakistan’s current account is likely to suffer as the country’s lifeline, i.e., 'remittances' fall. This comes in the wake of exchange rate discrepancies in the market and the rise in political instability. As imports continue to rise, the country faces multiple problems including further instability of the PKR and the increasing gap in exchange markets.
Firstly, the issue seems to arise from the difference between exchange rates in the open market and the interbank rate. The interbank refers to the exchange rate set by banks, on the basis of which currency is exchanged between banks. Whereas, for common buyers and sellers, the open market operates through currency exchange dealers. In the past few months, both exchange rates have seen a rising difference. Mostly, this difference is attributed to service charges for the open market service providers. However, recently the problem has extended to include the effects of people who ‘invest in foreign currency’ thereby, depending on the volatile exchange rate.
Considering that the open market offers better exchange rates for the diaspora, people prefer hawala-hundi and other undocumented methods to send their remittances. This has affected the inflows in Pakistan’s exchange markets. Additionally, the political instability in the country has affected remittances negatively as many investment-oriented transfers have halted.
Pakistan’s unreal reliance on remittances to manage its balance of payments is catching up with the current account. As the situation gets more uncertain, Pakistan’s current account raises valid concerns from the IMF.
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