In the face of political and economic uncertainty, dwindling foreign exchange reserves, declining remittances and a high trade deficit, the Pakistani rupee continues to fall against the UAE dirham, hitting a nearly three-month low.
There has been political and economic turmoil in the South Asian nation since April 2022, as the government and opposition have clashed over various issues.
At exchange houses in the country over the weekend, the rupee was quoted at 62 to the UAE dirham (228.15 to the US dollar). While online foreign exchange website XE was quoted the rupee at 62.12 on Sunday morning. It was trading at the same rate in the first week of October 2022.
South Asian currencies are still below their all-time low of 65.3 hit in late September 2022.
According to the State Bank of Pakistan’s latest data, workers’ remittances dropped 3.2 per cent month-on-month and 19 per cent year-on-year to $2 billion (Dh7.34 billion) in December 2022.
The first half of fiscal year 2022-23 saw remittances reach $14.1 billion, down 11.1% from the same period last year. Remittances inflows during December 2022 were mainly sourced from Saudi Arabia ($516.3 million), UAE ($328.7m), the UK ($314.2m) and the US ($230.5m).
The trade deficit for Pakistan during July-December 2022 was $17.13 billion, compared to $25.43 billion in the same period last year.
In Pakistan, the UAE dirham and US dollar are trading much higher in the open market, and this is reflected in the hawala system as well. The rupee was trading at 68.5 against the UAE dirham or 236.25 against the US dollar through the hawala system.
Hawala is a traditional method of transferring money whereby the money is paid to an agent, who instructs an associate in the relevant country or area to pay the final recipient. As a result of these transactions, no record is maintained, hence, the funds can be misused for money laundering and terror financing.
In November 2020, the Central Bank urged non-registered hawala providers operating in the UAE to officially register and obtain a certificate before December 2, 2020. People in the UAE can remit funds through exchange houses, banks and registered hawala operators.
Due to the hefty penalties associated with non-compliance with local laws, the UAE continues to launch public awareness campaigns about hawala.