What’s behind the surge in May remittances?

The whopping unexpected increase in worker remittances in May 2017 suggests that the full-year inflow may well land within the SBP’s forecast range of $19.5 and $20.5 billion. This column now estimates the full-year number to be $19.5 to 19.7 billion, provided the Ramadan effect hasn’t already happened. In last month’s coverage, we estimated a full number of $19.1 billion. But first some clarification!

In last month’s coverage of monthly remittances, this column wrote that “In the wake of weaker-than-projected April flows, full-year forecast has to be revised downward to $19.1 billion, while keeping the optimistic assumption of 20 percent month-on-month growth in June 2017.” Those who have been following this space would also recall that we had termed SBP’s as well as Planning Commission’s forecast (which was $20.2 billion) as “optimistic.”

What has changed since then? Well, it’s difficult to understand at this point. May 2017 saw an inflow of $1,867 million. It’s the highest monthly inflow since June 2016, which was a Ramadan month and had then seen a month-on-month increase of 15 percent. And guess what the month-on-month jump in May 2017 was? A whopping 21 percent, as against 10-year May average of 3 percent. There is no way anyone could have expected this based on seasonality alone, especially in a fiscal year which has been consistently witnessing lower inflows month after month (See: during-the-year trend graph).

It is usually those particular months in which Ramadan falls that witness a sharp spike in remittance inflows. For instance, a 20 percent jump in July 2013, a 10 percent increase in July 2014 and June 2015, and a 15 percent rise in June 2016 – all of these months coincided with the bulk of the annual Islamic fasting days. But never in the last ten years, the data for which is publicly available, has the month ‘preceding’ Ramadan witnessed as big a jump as seen in May 2017 (21 percent).

What explains this phenomenal rise? Is May’s unexpected spike because the Ramadan effect on remittance inflows has happened prematurely this year around? Or because certain economic fundamental or transaction management factors are at play?

A review of regional economies does not reveal noticeable overnight changes that can explain the surge in May. Could it then be because of efforts made by Pakistan Remittance Initiative? Sources in banking industry say the PRI has been actively engaging the banks to boost their marketing efforts both to existing wage earners and to those embarking on their expat journey.

In the first case for instance, banks have been aggressively marketing, especially in the UAE labour camps. In fact, the HBL held and funded a cricket tournament in several labour camps in the region. The impact of these campaigns is visible in the data as well; in 10MFY17 inflows from the UAE were down 2.3 percent year-on-year whereas in eleven month numbers it is down only 0.88 percent.

In the second instance, the banks, especially UBL, HBL and Tameer, have been actively engaging the outgoing labour at the offices of protectorate of emigrant offices, Bureau of Emigration & Overseas Employment - Government of Pakistan. This engagement takes the shape of awareness and training workshops, whereas workers are also handed out pamphlets containing ‘fatwas’ from various religious schools of thought that warn how sending remittance through ‘hawala’ is not-Shariah compliant.

Channel checks with banking sources also reveal that the government has lately become active on the remittance front by timely (indeed early) reimbursement of the TT charges on home remittances. About Rs4 billion was paid in April, and Rs2 billion was paid in May. As a result, firms engaged in remittance gathering in the region, whose capital previously used to get blocked for longer periods, have now become aggressive on the Pakistan corridor.

While these transaction management factors explain the rise in May, it may also be true that some of the Ramadan effect on remittance inflows has happened prematurely (in May) this year.

This is because there will be about seven days of Eid holiday in the region for Eid due on June 25/26. So effectively the remitter and the remittance machine have little more than half a month to work with. How much remittance will be channeled in June is anyone’s guess at the moment. But whatever that number is, remittance needs a fresh boost as the country braces itself for the first annual fall in remittance in 13 years.