Like COVID-19 cases in Pakistan; or highest ever petrol consumption amid COVID-19 restrictions in the country; remittance numbers are baffling experts. A week after Asian Development Bank placed Pakistan among the five worst-affected Asian economies where its remittances are likely to be hit by 27 percent, Pakistan reports the highest ever monthly inflows of worker remittances in July 2020 – proceeding the high of June 2020 (second highest ever monthly tally).
The cut in growth prospects of remittances from the likes of ADB, World Bank, UNCTAD is not hyperbolic as jobs are being lost; and incomes of expats are shrinking in the oil producing nations - the key source countries for remittance inflows into Pakistan - as a result of the adverse impact of coronavirus on economies. At home however, the forecasts and estimates are more optimistic, and experts only see a moderate decline to no decline in annual FY21 remittances as COVID-19 cases are seen falling, and economic activity has returning gradually as lockdown is lifted completely.
Predicting what route these important foreign inflows would take is a long shot. But the official numbers have been fueling optimism. After highest every monthly inflow in June 2020 at $2.47 billion, FY21 started off on a high for remittances. July 2020 home remittances checked in even higher at $2.77 billion – up by 36.5 percent year-on-year, and 12 percent month-on-month.
Apart from the growth in remittances due Eid-ul-Azha where expats usually send higher amounts related to Hajj and sacrificial animals, there sure are other factors for the phenomenal year-on-year growth. The market is buzzing with reasons like financial settlements for laid off workers returning home; informal channels shifting to formal as a result of restrictions on international flights during the pandemic which has restricted the hand-to-hand or ‘Hawala’ transactions; higher inflows from expats to take advantage of the recent construction sector amnesty scheme; and accumulative transfers from expats due to easing of lockdown in various countries as well as release of payments.
Country-wise, the argument that expats are returning home seems plausible as inflows from oil producing countries have seen a significant growth. Remittances from Saudi Arabia have seen a growth of 74 percent year-on-year, bucking the year-old trend of static or declining inflows. It is surely not the increase in their incomes; nor is it the revival of job market in these countries. Also travel restrictions, efforts by SBP and particularly no Hajj/Umrah movement in the case of KSA have played a role in curbing informal transfers, which is another factor in lifting reported inflows from key corridors.
The country wise remittances also show that while inflows from KSA, UAE, and the other GCC countries have increased staggeringly, there has been a marked decline in remittances from USA in July 2020 (22% YoY), which has otherwise been showing a steady growth over months. The SBP has changed the compilation methodology for country-wise workers’ remittances.
Sources told BR Research that previously some inflows from source countries were routed from other countries and were being recorded as inflows from the routing countries; this was in a large part seen as rise in remittances from USA and Malaysia where key exchange companies have their head offices. Coming months will show the actual country-wise distribution of remittances.
On remittance growth, the situation will be clear in a couple of months. Hopes are also pinned to the facilitation of seamless digital transactions beginning soon for the overseas Pakistanis to boost remittances.