Unofficial channel use causes IT exports to decline by 23%

Pakistan’s information technology (IT) industry witnessed a decline in exports of 23% month-on-month in January 2023

There was a slump in the industry as a result of a clash between the official and unofficial remittance channels.

In January, the IT sector’s exports dropped to $190 million, with a decline in computer and telecom services of 20% and 35%, respectively. Additionally, the export of computer software and consulting services for software fell by 25% and 15% MoM, respectively.

Khurram Schehzad, CEO of Alpha Beta Core, asserted that factors both internal and external to the industry contributed to the decline in IT exports. The global economic downturn and remittances sent through unauthorised channels like Hawala and Hundi were among the contributing factors.

Schehzad emphasised that it is challenging to shut down the unofficial channels once they are up and running. Additionally, because of the political and economic unrest, foreign businesses are reluctant to work with Pakistani businesses, and exporters are keeping their profits at home.

According to Nasheed Malik, a Topline Securities Research Analyst, the decline in IT exports points to a 10- to 15% difference in interbank and grey market dollar rates throughout most of January. The difference between the dollar rates had narrowed by the end of January, though, so it is anticipated that the IT export proceeds will increase through official banking channels.

In the first seven months of the current fiscal year, IT industry exports were almost flat at $1.5 billion, with an increase of 2% YoY in January 2023 to $190 million due to an increase of 8% in telecom services. The exports in January 2023 were the lowest since May 2022, with a value of $184 million, which was lower than the six-month average of $221 million.

According to Malik, the YoY growth in IT spending averaged 3% from May 2022 to January 2023, compared with an average growth of 32% in the nine months preceding, from August 2021 to April 2022. Gartner, a technology research and consulting firm, has lowered its forecast for IT spending growth to 2.4% in 2023 from 5.1% earlier in the year.

The IT ministry has set a target of $5 billion for FY23, but the monthly average of $218 million for the current fiscal year suggests Pakistan is likely to fall well short of the export goal. In light of the macroeconomic difficulties in the US and Europe, Waqas Ghani Kukaswadia of JS Global ICT noted that the region’s IT service providers were experiencing only moderate growth in constant currency terms.

Spending on software and IT services is anticipated to remain strong despite the global slowdown. Additionally, according to Malik’s analysis, developed market inflation-driven higher IT labour costs will probably result in more outsourcing.

Written by Aly Bukshi

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