Remittances - the growth slows down

It's usually a celebration for home remittances during the holy month of Ramazan and the festive season(s) that follow. But it seems that the government is not too sanguine this year while giving hopes that it will be able to cross $19 billion mark for home remittances in FY16.

Why? Take a look at the annual growth rates (see illustrations). Workers sent home around $18.5 billion through official channels in FY15, and the $19-billion-achievable-target boasted in the budget speech and elsewhere from time to time is a mere three percent year-on-year increase. Also, this would be the weakest growth rate since FY09 - a year when the Ministry of Finance launched the Pakistan Remittance Initiative (PRI) in collaboration with SBP and the Ministry of Overseas Pakistanis to streamline inflows through official channels.

With only one-month remittance data to be announced, inflows of foreign receipts from overseas Pakistanis for 11MFY16 stood at $17.8 billion - up by 5.58 percent year-on-year. Compared to this, 11MFY15 remittances amounted to $16.898, which was higher by 17 percent year-on-year.

Even extrapolating the data reveals the same; taking the average monthly remittance inflows of $1600 million (based on the eleven months of FY16), the FY16 remittance total comes down to not more than $19.17 billion, an increase of less than four percent annually.

However, even with slowing growth, remittances continue to be a major driver of the economy as they are around seven percent of GDP and are the largest source of foreign exchange earnings after exports. Rather, the deceleration of remittances should be alarming for the government those banks on these inflows to stabilize the foreign exchange reserves and the external account.

Major slowdown factors for these foreign inflows have been very low inflation across advanced economies and a slow global economic recovery. Also, remittances have started feeling the pinch of low oil prices with oil-producing economies inclined to cut investment and hire fewer foreign workers. Besides the exogenous factors, a key home-grown issue is the quality of overseas Pakistanis; the workers exported abroad from Pakistan are mostly unskilled compared to professional and skilled workers coming from competing countries like India, Philippines, etc.

Remittances have traditionally been a certainty for Pakistan's economy that has seen its fair share of volatility otherwise. But the recent slowdown has thrown this premise into question. After PRI, it is now time that the government buckles up and takes some concrete steps to address impending issues like the quality of labour force.