Remittances: looking for a fresh start

That remittance inflows in Pakistan are not growing at a comforting pace is pretty much well established by now. The latest numbers for March 2017 only reconfirm the trend already visible in the year to date.

March 2017 saw remittance inflows drop 1 percent year-on-year, taking the 9MFY17 fall to 2.3 percent as against an increase of 5.8 percent in the year ago period. On month-on-month basis, March saw a decent increase (about 20 percent). But that’s because February 2017 was an unusually slow month for remittances.

The drop in remittance flows from Saudi Arabia – though not the biggest in percentage terms – contributed the most to the total decrease of $330 million in the nine months ending March 2017. The US, UK, UAE and other GCC countries followed (See pink bars in column chart). Total decline in remittance flows from these countries – that contributed nearly 90 percent to Pakistan’s remittance kitty – was about $700 million.

The saving grace was from the EU countries and this category called ‘Other Countries’ from where remittance saw a combined year-on-year increase of $337 million in 9MFY17, and thereby helped partially offset the decline from other countries (See blue bars in column chart).

Who are these ‘Other Countries’? They are surely notthe usual suspects – the likes of Japan, Australia, Canada, Switzerland - because the central bank does not include these places in the ‘Other Countries’ category.  If there are some noticeable players in this category, the SBP would do well to unbuckle that category.

The SBP and the Finance Ministry would also do well to start publishing the annual report of the Pakistan Remittance Initiative (PRI); the public needs to know about its periodic performance.

Formed in 2009, by the PPP government, the initiative has worked well up until now. With the PML-N taking over the wheel in 2013, the party whose manifesto said it will launch diaspora bonds to increase remittances flows, one was hoping that by the time the returns of PRI’s earlier efforts would start saturating, there would be a new kick in the form of new products.

Yet progress on that front has been dismal – and that too by a government whose finance minister is fixated with exchange rate stability.  How could one be fixated with exchange rate and yet do precious little to extract more juice from remittances.

As for year-end remittance numbers, the central bank expects full year FY17 remittance to range between $19.5 and $20.5 billion; the Planning Commission forecast is $20.2 billion. BR Research estimates the full year number to land at $19.7 billion. This is assuming an optimistic 20 percent month-on-month growth in June 2017 (due to the Ramadan affect) and an increase of 2.5 and 4 percent (based on historical averages) in April and May respectively.

Slow remittance growth is expected to continue in FY18 on account of falling number of migrant workers going to the GCC (reflecting stressed fiscal conditions in these countries due to low oil prices); the pound sterling’s depreciation against the US dollar, and stricter regulatory controls in the US.

There may be some respite from Kuwait corridor following the recent decision to lift restrictions on issuing visas to Pakistani nationals, the SBP said in its recently released second quarter State of Economy report. But that may not be enough to offset the decline from other corridors. Until last year, remittance inflows from Kuwait were small – 4 percent of the total inflows – and there is no reason to expect inflows from this corridor to grow leaps and bounds.

Sooner or later, remittances will need a fresh kick with new products on the table, and that will require more than just creative accounting or marketing gimmicks.