Currently, dollar rate in Peshawar market is up to Rs. 240 while in Karachi it is up to Rs. 237. A difference of up to Rs 15 to a dollar makes the gray market more attractive to remitters.
By Ghulam Haider
Remittances by overseas Pakistanis have recorded a continuous decline in the current financial year and in the month of October this year, remittances were about 16 per cent less than in the same month last year.
According to the data released by the Central Bank of Pakistan, October 2022 also saw a decrease of nine per cent compared to September 2022 and if the four months of the current financial year are compared with the same months of the previous financial year, a decrease of more than eight and a half per cent was observed in remittances from Pakistanis residing in the country.
It should be noted that remittances from overseas Pakistanis are the main source of foreign exchange in Pakistan and its decline is being seen at a time when Pakistan is facing a shortage of foreign exchange and foreign exchange reserves with the central bank and commercial banks are continuously decreasing.
The Central Bank currently has foreign exchange reserves of eight billion dollars while the country’s total foreign exchange reserves are 13.7 billion dollars. During the last week, Pakistan has had to pay 950 million dollars in external debt repayment due to which the foreign exchange reserves have decreased significantly.
The trend of decreasing remittances in Pakistan started after the month of April this year. Remittances of 3.1 billion dollars in the month of April were the record remittances received in a single month in Pakistan, but after that they started to decrease, and in the month of October only 2.2 billion dollars of remittances came to the country.
Experts in the foreign exchange business in Pakistan claim that foreign remittances are still being remitted, but they are preferring informal channels such as Hawala and Hundi rather than legal or official channels, due to which remittances reaching Pakistan through official channels is decreasing.
It should be noted that the inflow of remittances through unofficial channels is also very dangerous for the economy of the country because the dollars coming in the form of remittances help increase foreign exchange reserves in Pakistan and reduce current account deficit.
What was the trend of remittances in one year?
If we look at the trend of remittances in a year in Pakistan, in the month of October last year, remittances of two and a half billion dollars were received and in the next four months, they remained around two and a half billion.
In the month of March this year, an increase in remittances was seen when these amounts reached 2.8 billion dollars, and in the month of April, it crossed the threshold of 3 billion dollars for the first time to 3.1 billion dollars.
They saw a decline after April and fell to $2.7 billion in August of the current financial year, followed by a further decline in September when remittances fell to $2.2 billion in October. From the month of April to the month of October, the volume of remittances has decreased by ninety crores.
Reasons for remittances coming through Hawala and Hundi?
People associated with the currency business and experts claim that the main reason for the decrease in remittances is the difference between the official rate of the dollar in Pakistan and the rate found in the gray market, due to which most of the money now comes from remittances in Hawala and Hundi.
There is a reason behind this factor. Other channels give better rates as compared to the official channels. The official dollar rate is currently being offered at Rs. 221 while the same rate is being offered at more than Rs. 230 from other channels. The dollar rate is also playing its role.
Currently, dollar rate in Peshawar market is up to Rs. 240 while in Karachi it is up to Rs. 237. A difference of up to Rs 15 to a dollar makes the gray market more attractive to remitters.
The State Bank of Pakistan has also noted that the remittances have gone to them more due to getting better rates through the informal channel.
Is the global economic situation the reason?
In the fiscal year ending on June 30, 2022, a total of 31.2 billion dollars were sent to the country by Pakistanis abroad, which was six per cent more than the previous fiscal year, but a decreasing trend is being seen in the current fiscal year.
Samiullah Tariq, head of research at the Pak-Kuwait Investment Company, says that that global economic conditions have negatively affected remittances from abroad in Pakistan. He says that the interest rate has been increased by the major economies of the world, due to which there is more profit in investment, so the dollar is mostly going to these countries and Pakistanis abroad are also getting their money. Savings are being invested in these economies to earn more profits.
He says that due to the bad economic situation in the world and the increase in inflation, people’s savings have also been adversely affected and overseas Pakistanis have also been severely affected by this and they have very little money after meeting their daily expenses. The savings remain to be sent to their families in Pakistan or for investment.
People are sending less money due to inflation, which is reducing savings across the world. The economic slowdown in Europe, United Kingdom and America has also affected the remittances sent to Pakistan.
Roshan Digital Account: Political or Economic Cause of Declining Investment?
Investment in Roshan Digital Account is no longer so attractive. The scheme which became a means of money transfer especially for overseas Pakistanis, is now getting some impression about it.
The investment in Roshan digital accounts in Pakistan reached 5.2 billion dollars in the current financial year till the month of October while the volume of investment in these accounts was 14.6 million dollars.
The volume of investment in these accounts in the month of October was less than that of September, but this decrease was not seen only in the months of October or September, but this trend has been going on for several months. In the month of March, there was an investment of 29 million dollars in these accounts, but after that there is a continuous trend of decrease.
It should be noted that Roshan Digital Accounts project was introduced two years ago by the previous Pakistan Tehreek-e-Insaf (PTI) government for those living in Pakistan and outside the country, but their assets had to be declared abroad.
Overseas Pakistanis invest in these accounts. There is a general perception of Pakistanis abroad that a large number of them are sympathizers of the PTI and that their investment has been curtailed since the ouster of prime minister Imran Khan in Pakistan.
Investing in these accounts is not profitable and attractive?
Mohammad Arif, based in the UAE state of Sharjah, is a PTI sympathizer, but last month he increased his investment in Roshan Digital Accounts. Arif works in an oil company and deposits his savings in these accounts.
He says that he is an employee of a company and saves some money from his salary and invests it in these accounts to keep some profit. He got good profit so he increased the investment. Their investment is in Pakistani rupees and they get good profit on it.
On the other hand, an investor named Zahid Munir from the UK has no affiliation with any particular party, but he has significantly reduced the investments in these accounts. The reason for this, he says, is that investing in these accounts is no longer as profitable and attractive. He says that he was investing in the accounts in the form of foreign currency.
“Earlier, investing in these accounts in foreign currency was attractive, but now some other investment sources have become available in the global market, due to which they are no longer investing much in these accounts.”
How much has the investment in Roshan Digital Account decreased and what is the reason?
Investments in Roshan Digital Accounts started in September 2020 with an investment of 70 million dollars in the first month which reached its highest level in May 2021. In this month, 31 crore dollars were invested through these accounts, while in March 2022, 29 crores were invested in these accounts.
In the following two months, investment declined, but in June there was a slight improvement in investment. But since July, the trend of continuous decrease in this investment is seen.
The volume of investment in July was about 19 million dollars, which increased to 18.5 million dollars in August. In the month of September, its volume increased to 16 million and 80 million dollars, while in the month of October it decreased to 14 million and 60 million dollars. The highest investment has also gone into Naya Pakistan Certificate.
When financial sector experts were asked about the declining investment in Roshan digital, they said it must be related to the political situation. “The political situation has definitely affected the investment in these accounts to some extent,” says financial sector expert Sana Tawfiq. “Due to the political situation, the risk for investment in the country has increased and people have become cautious about investing in Pakistan.”
Fahad Rauf, an expert in the financial and investment sector, says that due to the political situation in the country, Pakistan’s domestic risk has increased and therefore the credit rating agencies working at the international level have reduced Pakistan’s rating.
He says that there is a close relationship between political situation and economic stability and the current political situation of the country has also affected it. He says that ‘When Roshan Digital Accounts started, at that time there were very attractive returns on investing in these accounts in Pakistan in foreign currency because at that time investing in the US or UK market and investing in Roshan Digital Accounts was very attractive. The profit margin was six percent.
“Because at that time the rate of return was 0.25 per cent while the investment in these accounts was giving a return of six to six-and-a-half per cent in foreign currency, which was very attractive,” he says. Because of 3 per cent increase in interest rates in the US and European markets, the investment in these accounts of Pakistan is no longer the same as before.
Zahid Munir says that it is true that investment in these bright digital accounts has not been attractive. He says “The difference has reduced, while the country risk of Pakistan has increased, so investors are no longer attracted towards Pakistan.”
The difference in profit on investment in UK and investment in Pakistan has remained very small and increasing Pakistan as a country risk is a threat to investment. He is of the same opinion that it has not been easy for investors to trust Pakistan’s economy.
Sana says there is also a reason that former Governor State Bank Raza Baqir had issued these accounts and he worked more diligently for them, which may be less visible now.
Fahad says that Pakistan will have to increase the interest rate on investment in dollars or other foreign currency to increase investment in Roshan digital accounts. He says that for the people living in the US or the UK, it will not be possible to bring a big investment by giving a profit of just two percent on the dollar or the pound.
Pakistan Rupee Exchange Rate