Pakistan experienced a decline in remittance inflows in the outgoing fiscal year due to expatriates preferring to use informal channels to send money. This was attributed to a significant exchange rate disparity between the interbank and open markets, with the unofficial market offering more favorable rates. Remittance inflows decreased by 12.8% during the fiscal year, with a total of $24.8 billion recorded during the first 11 months. The major contributors to Pakistan’s remittance are Saudi Arabia and the UAE, but inflows from both countries declined by 16.3% and over 19% respectively. The decline in inflows was primarily due to Pakistani expatriates choosing informal channels for fund transfers.
Currency dealers noted that some importers rushed to arrange for payment in order to clear their containers from the country’s ports. To fulfill their requirements, these importers resorted to the hawala market, resulting in increased demand in the unofficial market. In the unofficial market, the exchange rate was still above Rs300 per US dollar, while the gap between the open and interbank markets began to narrow. Efforts were made to release currency for exchange companies, resulting in the appreciation of the Pakistani rupee in the open market.
It was suggested that the government needed to resolve the issue of letters of credit (LCs) to improve the situation. Currency dealers believed that narrowing the gap between the open and interbank markets would encourage overseas Pakistanis to remit money through official channels. Overall, the decline in remittance inflows and the preference for informal channels reflected the exchange rate disparity and the potential benefits offered by the hawala market. Resolving these issues and providing more favorable rates in the official channels would likely encourage expatriates to use formal channels for remittances.