Questions loom over remittance growth

Remittances sent home by overseas Pakistanis grew 1.3 percent in the five months of current fiscal year. But the growth doesn’t look pretty. Not only is it that the 5M growth number is small but the latest tick, November 2018, actually saw a decline of 2.6 percent.

Recall that the HBL saga along with the post-Eid seasonal drop played a bad hand to remittances in September 2018 when it fell 20 percent year-on-year. From what it appears (see graph), the remittance market is still reeling from the HBL saga, where the lender had cut its ties with the Saudi-based Al-Rajhi Bank, whereas other players had become cautious.

But weak remittance flows from Saudi Arabia, the UAE and the GCC shouldn’t come as a surprise. At the start of last month, this column said that “from the looks of it, it (remittances) might remain weak till October or November 2017 depending upon how soon the Saudi channel is strengthened to previous levels.” (See BR Research column: Is HBL saga behind Sep remittance drop? Published, November 2, 2017).

There is however, some good news. Remittance flows from the UK have been on the rise. It rose nearly a quarter (23%) in 5MFY18. Considering that remittance regulations are being tightened by London, this growth is commendable and reflects PRI’s efforts towards increasing agency arrangements, and facilitating promotions and marketing campaigns in the UK.

But that news is partially offset by the decline in remittance from ‘other countries’ category. The biggest contributor to that category is Malaysia whose Pakistani diaspora sent about $1.07 billion in FY17 as remittances. The year so far has seen an 8.5 percent drop in ‘other countries’ category, which plausibly comes from the Malaysian corridor, although the SBP dataset doesn’t specify that.

At the end of first quarter FY18, this column said, “the real test of remittance flows will begin October onward”. Well, the report card of November alone suggests weak performance on that test. The government’s FY18 remittance target stands at $20.7 billion.

If this weakness grows in the ensuing month, then the government can forget about meeting the FY18 target of $20 billion because at current rate, the full-number may be about $19.3 billion, though of course it’s too early to put a finger on that.

Any positive surprise may come from the recently launched CDNS’s Overseas Pakistanis Savings Certificates aimed at attracting remittances. It will be a ‘surprise’ because selling that product to overseas Pakistanis at a time of political fragility at home and uncertainty over PKR-USD parity is a hard sales pitch, whereas Pakistan doesn’t even have a permanent on-duty salesman (FinMin) these days.