RemittancesGateway.org

Remittances falling since Oct ’09 despite incentives

Tuesday, 23 February 2010 16:25

Source: Dawn.com
By Shahid Iqbal

Overseas remittances have been declining since October 2009 despite special efforts by the State Bank and the ministry of overseas Pakistanis.

The central bank on Wednesday reported that during the first seven months (July-Jan) of the current fiscal remittances increased by 21.5 per cent compared to the same period of the last fiscal.It said the country received remittances worth $5.198 billion in July-Jan of the current fiscal, showing an increase of $920.82 million or 21.53 per cent over the same period of the last fiscal year.

However, remittances started falling on month-to-month basis since October 2009. The details show that the overseas Pakistanis sent $758.2 million in October, $742 million in November, $698.4 million in December and $667.9 million in Jan, 2010.

The exchange rate was less volatile during the first half of the current fiscal year with the rupee witnessing a 'marginal' depreciation of 3.4pc against the dollar. But the rising demand for dollars and declining trend of remittances threatens the exchange rate. - File photo

Though the collective seven months remittances are sill 21.5 per cent higher than last year but the trend since October indicates the reversal of increasing remittances.

Currency experts believe that the higher price of dollar in the open market has started playing its role. The gap in the price of dollar between open market and the inter-bank has widened during this period and was still expanding despite the efforts made by the State Bank to control it.

The State Bank had a meeting last month with the exchange companies to stabilise the exchange rate and minimise the gap between the two rates and assured them of supply of dollars.

The exchange companies were told to facilitate the buyers in the open market and do not refuse any one as refusal could spark a panic-like situation but the efforts apparently failed.

The open market has been offering more than Rs1.50 per dollar higher than the inter-bank market. On Wednesday, the open market traded dollar at Rs86.70 while the inter-bank maximum trading rate was Rs85.

"The price gap creates opportunity for illegal transfer of dollars into the country," said Atif Ahmed, a currency expert. The State Bank has strict rules against illegal transfer of money but the home-to-home delivery of remittance could not be avoided, he said.

Currency market said there was no shortage of dollars but the demand has gone up as the household savings in terms of dollars have increased. The rising demand and declining trend of remittances has badly hit the exchange rate.

On Jan 26, the State Bank said in a report that exchange rate volatility during the first half (July-Dec) of the current 2009-10 fiscal year (FY10) has declined to 2.7 per cent as compared to 10.5 per cent in the corresponding period of the previous year.

During the first half of FY10 the rupee witnessed a 'marginal' depreciation of 3.4 per cent against the dollar as compared with a sharp depreciation of 15.7 per cent in the corresponding period of FY09 thus broadly exhibiting stability of the exchange rate with improvement in macroeconomic fundamentals.