Rising remittances prove issuing Eurobonds was a bad decision for Pakistan

In one of my recent blogs I had opposed the idea of flotation of Eurobonds. It was based on two premises: 1) the issue will add to debt servicing and 2) the rate of return being offered is fabulous. I had also suggested that whatever amount Eurobond will provide would be mobilized in less than a month.

A review of remittance received indicates that receipts extended their unprecedented streak for the 10th consecutive month in March 2021 and rose to US$2.7 billion for the month, 20% higher than earlier month and 43% higher than March 2020. 

Cumulatively during first 9 months of current financial year (FY 21) remittances rose to US$21.5 billion, up 26% over the same period of FY20.

Remittance inflows during the period under review were mainly originated from Saudi Arabia (US$5.7 billion), United Arab Emirates (US$4.5 billion), United Kingdom (US$2.9 billion) and the United States (US$1.9 billion).

Proactive policy measures taken by the Government of Pakistan (GoP) and State Bank of Pakistan (SBP) to encourage inflows through official channels, limited cross border travel due to the COVID-19 and orderly foreign exchange market conditions contributed to this sustained rise in workers’ remittances.

I am still concerned about deteriorating balance of trade situation of Pakistan. The deficit during first nine months of FY21 swelled to US$21.241 billion from US$17.352 billion over the corresponding months of last year, reflecting an increase of 22.4%. The surge in trade deficit has been mainly led by higher growth in imports and lower growth in exports.

During the period under review, import bill increased by 14.68% to US$39.91 billion, from US$34.799 billion. This hike was contributed by import of raw material as well as import of wheat, sugar and cotton. As against this, export proceeds rose by 7% to US$18.669 billion, from US$17.447 billion.

I am also inclined to draw a conclusion that Pakistan would have faced serious balance of payment crisis, had there been not so huge influx of remittances. Even IMF tranches and borrowing from friendly countries would have proved too paltry.

Therefore, it is suggested that GoP must look into the problems faced by overseas Pakistani, particularly those living in UAE and Saudi Arabia. Similarly, efforts should also be made to convince these countries to resolve problems faced by Pakistanis.