Pakistan’s crackdown on illegal dollar trade boosts remittances, reports Bloomberg

Pakistan’s measures to combat illegal foreign-exchange trading are anticipated to lead to a record increase in the nation’s remittances this year. According to central bank data, cash sent back by expatriates rose by 3% to $14.8 billion in the five months ending in November compared to the previous year. This growth follows the country’s intensified crackdown on unofficial dollar transactions. Finance Minister Muhammad Aurangzeb predicts that remittances will hit an all-time high of $35 billion this year, up from $30 billion last year.

“The currency reforms do seem to have boosted remittances,” said John Ashbourne, an emerging market economist at BMI, a Fitch Solutions company in London. “This increase might be because remittances that had previously been sent using the black market are now being sent via official channels.”

The rise in remittances could enhance the country’s foreign-exchange reserves and mitigate a significant economic vulnerability that nearly led Pakistan to default last year. The government has been implementing stringent economic measures under the guidance of the International Monetary Fund (IMF) and successfully secured a $7 billion loan from the multilateral agency in September.

The crackdown on unofficial dollar trading appears to have redirected some transactions to official banking channels, contributing to an increase in foreign-exchange reserves, which climbed to over $12 billion by the end of November—the highest level since March 2022.

The Federal Investigation Agency has conducted raids on money changers’ offices, made arrests, and deployed plainclothes security officials at money exchange locations as part of the initiative that started over a year ago.

“All kinds of negative currency trading have significantly declined,” remarked Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan. He estimates that the illegal dollar trading market has shrunk by at least 20% in the past two years, with up to $10 billion now flowing into formal banking channels.

The rupee has appreciated 2% this year and ranks among the best-performing emerging-market currencies, buoyed by the IMF loan program and remittances.

The crackdown on illegal trading has provided the country with substantial foreign-exchange support in the form of remittances, contributing to currency stability, as noted by a research analyst.