June 2020 brought in record monthly home remittance in the country – up by 51 percent year-on-year to $2.47 billion. This came in as a pleasant occurrence because the last time monthly inflows were close ($2.3 billion) was in May 2019 when the remittance prospects globally as well as at home were not reeling from the effects of COVID-19. Also, this took the total FY20 tally for remittances to highest ever $23.12 billion, up by 6.4 percent year-on year.
The staggering growth in June is what has taken the market by surprise, which was expecting a dull end to FY20; 69, 49 and 85 percent growth was seen in three key corridors: USA, UK and Saudi Arabia, respectively; on the other hand, double digit growth (25 percent) was only seen in remittances from USA for FY20.
A number of reasons are making rounds for the rise in inflows from the expats in key corridors. Besides upcoming Eid ul Azha a key source of attracting inflows as always, the market has been buzzing with plausible factors such as rise in inflows as a result of financial settlements for laid off workers returning home; higher amounts being sent home to support relatives and families struck by Covid induced economic slowdown; higher inflows from expats to take advantage of the recent construction sector amnesty scheme; a rise in remittances routing through formal channel; and accumulative transfers as lockdown eased in various countries during June.
Whether the growth in remittances during June has to do anything with people bringing back home their hard-earned money or sending money into the property sector is not certain as of now with only one-month’s progress. But common sense suggests that the transaction size in this case should be bigger than the regular transfers – something that has not been witnessed by any of the exchange companies contacted.
On the other hand, pulse from the market is that the restricted and limited activity in the informal channels such as Hawala and Hundi due to lockdown worldwide has resulted in diversion of the foreign exchange towards official channels. An exchange company source told BR Research that there has been a 40 percent increase in the number of transactions as well a significant increase in the number of remitters. Expectations for July inflows are also sanguine. Ballpark percentage for informal remittances are between 30 - 50 percent. It’s a good opportunity for financial institutions to lure these remitters, and it seems that SBP is also focusing on schemes for financial institutions to retain these remitters.