A healthy growth in both exports and remittances in the first half of the ongoing fiscal year has provided some much-needed reprieve during a time when the economy is in bad shape, especially with regards to the external account. While exports rose 26.05pc to $9.38 billion, remittances surged by 11.3pc to an all-time high of $15.8 billion on a year-on-year basis. These higher inflows are necessary as they can contribute towards financing a soaring trade deficit that rose over 106pc to $25.5 billion in the same period under consideration, rather than the government having to use foreign loans. Exports have benefited from a drastic reduction in duty and taxed in federal budget 2021-22 resulting in lower input costs while their liquidity issues were also resolved to quite an extent with timely release of refunds and payment of cash subsidies. The remittance figure is a surprise for most as it defies projections of most analysts and experts who were expecting the number to fall. According to the SBP, “Proactive policy measures by the government and SBP to incentivise the use of formal channels and altruistic transfers to Pakistan amid pandemic have positively contributed towards sustained inflows of remittances since 2020”. Additionally, measures taken by the central bank to crack down on informal channels of transferring money such as hawala and hundi to meet FATF’s conditions, easier and more efficient procedure for consumers to use official banking channels for sending and receiving money and hefty devaluation of the rupee have all contributed to this significant hike in remittances.
Both sources of inflows are however susceptible to stagnation or reduction in the coming months. With an inflationary mini-budget passed and energy prices on the rise couple with a crippling gas shortage that is likely to persist throughout the wintes, exports will again start becoming uncompetitive due to the higher cost of production. Much of the rise in remittances is attributable to Pakistanis living in the US and UK rather than from Saudi Arabia and the UAE where the majority of remittances originate, which means they are stagnating. Considering these risks to growth, the government must look at options and take measures to ensure that the momentum is not broken. Otherwise it will have to start dipping much deeper into its foreign exchange reserves and increase its dependency on foreign loans.
