ARTICLE: The World Bank's estimates that $ 109 billion will be wiped out due to Covid-19, which is almost 1/5th value of global remittances, is absolutely incorrect. In May, they projected a 20% decline.
According to reports, last year around one billion people in the world that are living abroad, remitted $ 714 billion to their home countries. It is estimated that 55 to 60 countries depend on inward remittances that roughly constitute a little over 5% of their GDP. But the trend of inward remittances that came through the banking channels in Pakistan smashed all previous records to close the fiscal year at an all time high of $ 23.1. June inflows of $ 2.47 billion negated the World Bank's forecast.
Inward remittances have provided huge support to Pakistan's ailing economy in many ways. It is almost a billion dollar higher than the World Bank estimate of a 20% decline in remittances, covering drop in exports to a certain extent. The extra inflow has added liquidity of nearly Rs 150 billion.
Covid-19 is clearly hurting exports due to a significant drop in global demand, but from Pakistan's perspective it is helping in so far as remittances through banking channels are concerned. Global slowdown has sharply depressed oil prices that has substantially reduced the oil bill and improved our balance of payment position as a consequence, easing pressure on the current account deficit.
Further, the lockdown abroad has helped push remittances higher due to closure of flights, as expatriates are unable to visit their homeland. Overseas Pakistanis are not visiting the country due to non availability of regular flights, hence they are not bringing cash with them, instead they are remitting money through official channels. They mostly sold foreign currency in the Kerb market, as banks are unable to match the cash rate that carries insurance cost. Also Pakistanis laid-off abroad have received their severance settlements that have contributed to this increase as well.
More importantly, credit should be given to policymakers, as timely measures that were taken by them have helped. Concessions given to the remitters for transfer of funds by reducing the amount size to $ 100, makes it more easy/attractive for the labour class. Concession also allows banks abroad to quote competitive PKR rates.
There is an alarm and unrest that plunge in oil prices is adding pressure on oil producing economies, which is hurting their finances. Despite stimulus, Covid-19 is having a negative impact on GCC's non-oil industries, such as tourism, real estate, construction and aviation. Weak balance sheets will compel them to make necessary fiscal adjustments by slashing spending. Commercial banks will certainly avoid lending to the risky sectors. This puts expatriates at huge risk, which could see sizable job losses.
This is one of the major factors why overseas Pakistanis fear job losses. They are, therefore, spending less and must be saving more for the future spending, which will support remittances through banking channels. This uncertainty is likely to prolong and unless the threat of pandemic ends and traveling, tourism and border crossings gets back to normal, flow of remittance through official channel will not fall as projected by the World Bank.
(The writer is former Country Treasurer of Chase Manhattan Bank)
Copyright Business Recorder, 2020