The growth streak for remittances continues. Though lower than remittances in the previous two months, remittances in August 2020 are still above $2 billion, the monthly psychological barrier. As per SBP, home remittances in August 2020 stood at $2.095 billion, up by 24 percent year-on-year. The month-on-month decline in August, however, stood also at 24 percent.
Growth in remittances in August 2020 was led by Saudi Arabia, UAE, and the UK contributing to 62 percent of the total remittances. The other key contributors were USA and the other GCC world making up another 20 percent of the total. Remittance in the first two months of FY21 (2MFY21) stood at $4.86 billion, up by 31 percent year-on-year.
Growth in remittances came from Eid-ul-Azha related seasonal inflows (which were also a key factor behind highs achieved in July). Also, a plausible factor has been the informal channels shifting to formal due to restrictions during the ongoing pandemic that limited the hand-to-hand or ‘Hawala’ transactions. Other factors for growth have been the gradual re-opening of businesses in major host countries such as Middle East, Europe, and United States.
One can notice that the share of Malaysia which was seen increasing last year, as well as significant growth of inflows from the US have also normalized due to the changes in the compilation methodology of SBP whereas previously some inflows from source countries were being routed and recorded as inflows from the USA and Malaysia.
So where to now? After two months (June and July 2020), monthly remittance numbers seem to be normalizing to levels seen earlier in 2020. Does this mean that it is a downhill journey from here? Where local market sentiments have been optimistic due to SBP and PRI’s initiatives, global forecast for remittances amid coronavirus pandemic has been bleak; Asian Development Bank placed Pakistan among the five worst-affected Asian economies whose remittances are likely to be hit by 27 percent. Fitch has also raised concern over the credit rating of countries including Pakistan due to potential decline in remittances.
Amid the remittance dry out predictions, remittances have been holding up so far. But they have become precarious to the global pandemic. Though FY21 has started off on a positive note with highest ever monthly remittance inflows so far, sustaining the growth will be key in the coming months.