Pakistani authorities agreed to let the rupee float in an effort to stem a balance of payments crisis and boost falling exports
Pakistani expats are rushing to money exchanges to remit money home in the wake of a devaluation in the rupee, according to the activity registered by the UAE’s trade body of money exchanges and foreign currency remitters.
“We’ve noticed a significant spike in the number of currency remittances from the UAE into Pakistan,” Rajiv Raipancholia, treasurer at Foreign Exchange and Remittances Group (FERG), told Arabian Business.
Pakistan is among the top four destinations for remittances out of the UAE. The country received nearly $20 billion in remittances globally, the country’s second biggest source of income after exports, according to statistics from the State Bank of Pakistan. Roughly half of those remittances come from the Gulf.
However, under pressure from falling exports and a balance of payments deficits due to shrinking foreign currency reserves, the country allowed its currency to devalue and find a rate closer to what the market for currencies would dictate.
Since December 2015, the rupee traded between a strict band varying between 104 and 105 rupees to the dollar. The State Bank withdrew its support on Friday, and by Monday the currency had plunged five percent in value.
Even steeper declines were possible, said Rachanpolia. “The currency could drop to 10 percent with respect to the dollar. Even the three percent fall we witnessed on Monday was enough to spike remittances.”
Based on the history of currency flows out of the UAE, a fall in the value of a currency is usually followed by a rush in remittances from expats, said Raipancholia.
“Expats like to take advantage of the higher amount they’ll get in return when buying the devalued currency. This will be followed by a drop once they have exceeded their caps for the month before stabilising as the value of currency also stabilises,” he said.finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.