News Analysis |
Much to the delight of the incumbent Finance Minister Mifta Ismail, Pakistan’s exports continue to show improvement along with our remittances. However, the decline in the worker remittances from Saudi Arabia – a traditional stronghold and the biggest source of remittances to Pakistan – remains a concern.
According to the latest data released by the Commerce Division, in April, exports of merchandise grew by 19 % year-on-year basis and reached $2.13 billion as compared to $1.79 billion a year ago. On the other hand imports reached $5.1 billion in April 2018 from $4.96 billion in the April 2017, showing an increase of 3% year-on-year basis.
Despite the healthy double-digit growth this year, Pakistan was still not able to avert the huge trade deficit of 14.4%. Pakistan’s trade deficit has reached a staggering $30.24 billion in absolute terms as compared to $26.43 billion last year. With this in mind, the government seems optimistic that exports are on track to accomplish the target of $23.09 billion this fiscal year.
The net reserves with the SBP have reached $11.162 billion after a decline of 3.79% from $11.602 billion on March 30. Pakistan’s reserves are overstretched and are largely dependent on the success of the CPEC and Pakistan’s export policies.
Even though the Finance Minister Mifta Ismail has ruled out another round of depreciation, it looks like, in the open currency market, the Pakistani rupee may not hit the widely quoted 125 mark. However, it has declined enough to boost exports. In the current fiscal year, exports have reached $19.2 billion, and are not far from the target of $23.09 billion.
Remittances have shown a surge of 3.9% over a corresponding period. In the first 10-months in FY18, Pakistan has raked in the remittances of $16.3 billion, as compared to $15.643 billion received from July-April in 2017.
However, the figures from KSA are not encouraging. For the first 10-months of the fiscal year, after witnessing an increase of 5.96% in FY2016, amid the deteriorating economic situation in KSA, remittances went downhill. In FY2017 remittances decreased by 6.62%, but this fiscal year, the impact has been severe, as the worker’s remittances for Saudi dropped by a staggering 9.46% from July17-April18.
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In absolute terms, the figures for remittances were $4.517 billion in FY17 and were reduced to $4.09 billion in the current fiscal year. In Pakistan, traditionally, a major chunk of overseas workers remittance comes from the Saudi Arab, US, UAE, UK and other GCC countries. KSA remains the biggest contributor towards the remittances.
Nonetheless, recent immigration curbs and ongoing austerity measures have changed the situation in the Kingdom, which could still disrupt the flow of remittances, especially if Saudi economy fails to transform as prescribed under vision 2030. Further to this, employment in the US has reached pre-crises level and EU countries are slowly reverting back to normalcy, which is helping to bridge the gap and keep the remittances flow steady.
Pakistan’s trade deficit has reached a staggering $30.24 billion in absolute terms as compared to $26.43 billion last year. With this in mind, the government seems optimistic that exports are on track to accomplish the target of $23.09 billion this fiscal year.
Under the new economic vision, Saudi locals are given priority over the Pakistani workers. Traditionally, Saudi labor market has been the biggest market for Pakistani labor, but the recent imposition of taxes on expatriates has worsened the situation for Pakistani labor.
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After the introduction of new amnesty scheme, overseas Pakistani’s are sending more money knowing that after July 01, if the remittances exceed $100,000 per year, they will be subjected to tax. The surge in exports as compared to imports has improved the reserve position, especially after the imposition of duties on import of certain goods, but the depreciation of the rupee has increased the debt servicing, making reserves evaporate quickly.
Despite, the overall increase in remittances, the external outlook remains bleak as Pakistan has to pay huge sums in debt servicing. The net reserves with the SBP have reached $11.162 billion after a decline of 3.79% from $11.602 billion on March 30. Pakistan’s reserves are overstretched and are largely dependent on the success of the CPEC and Pakistan’s export policies.