In December, remittances to Pakistan increased 5.4 percent on a month-on-month basis         A currency exchange agent counts US Dollars at his company in Iraq's southern city of Basra, on December 8, 2023. — AFP

KARACHI: The remittances from overseas workers rose 13.4 percent to $2.4 billion in December, the central bank data showed on Wednesday, as a stable currency and signs of economic recovery boosted inflows through formal channels.

The increase was mostly caused by Pakistani migrant workers using formal channels to remit funds, which was made possible by stable local currency, ease in external pressures, and signs of economic recovery, as a result of structural reforms supported by the International Monetary Fund. Besides, the country was able to secure funding from multilateral institutions like the World Bank and the Asian Development Bank because of the IMF's loan programme.

In December, remittances to Pakistan increased 5.4 percent on a month-on-month basis. These inflows totaled $2.2 billion in the previous month. The latest remittance numbers were released ahead of the IMF’s executive board meeting on January 11 (Thursday). The Fund’s board will consider final approval to release the next $700 million tranche for Pakistan under its existing loan programme.

Under the $3 billion standby arrangement, Pakistan got $1.2 billion from the IMF as the first tranche in July. The December remittances figure was higher than the $2.2 billion average for the entire year 2023.

“Stable currency and signs of economic stability are helping in receiving above average workers remittance in Pakistan,” said Mohammed Sohail, the CEO at Topline Securities Limited. Since the rupee steadied and the government tightened its crackdown on illicit flows, remittances have just begun to increase in volume. Because of the significant depreciation of the rupee in September, the caretaker government and central bank clamped down on illicit dollar trade, currency hoarding, and illegal money transfers. The rupee hit a record low of 307 against the dollar on September 7 in the interbank market.

The rupee recovered from its losses after the government implemented strict requirements and benchmarks set by the IMF, which led to historic reforms for the exchange businesses sector by the State Bank of Pakistan.

As a result, the differential between the interbank and the open market rates fell from a high of 9.2 percent to almost zero. The rupee was trading at 281 against the dollar on Wednesday.

“I think the elimination of the gap between interbank and open market rate along with improvement in exchange rate parity and clarity regarding the direction of exchange rate helped improve remittances through formal channels,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

The SBP's statistics show that the largest remittance inflows came from Saudi Arabia, where they increased by 9 percent to $578 million in December. Pakistani nationals working in the UAE sent $419 million home in December, a 27 percent increase over the $331 million they sent home in the same month the previous year. Remittances from the UK rose to $368 million, a 15 percent rise.

Remittances dropped by 7 percent to $13.4 billion in the first six months (July-December) of the current fiscal year. Remittances decreased in the first half of the current fiscal year, but analysts anticipate an uptick in inflows in the coming months, which will help the nation's balance of payments.

Because the experiment of imposing administrative controls on imports has been effective, the current account deficit is likely to stay within acceptable bounds. Exports are increasing due to reforms while imports are sluggish because of the slowdown in demand.

“Flow of workers’ remittances is expected to increase in the coming months translating into an inflow of $28.5 billion for FY24, up 4 percent year-on-year. We forecast current account balance for FY24 to clock in at $4.0 billion or 1.1 percent of GDP,” said Taurus Securities in a note published last month.