Falling Oil Prices threatens Pakistan's Inflow of Remittances

While remittances from migrant workers in the Middle East touched record amounts in recent months, sustaining home economies during the pandemic, falling demand for oil in the Gulf states means that this remittance boom might soon be turning into a bust.

As job market opportunities diminish along with the demand for oil, the inflow of remittances in Asia's emerging markets, including Pakistan, will suffer. The Fitch Ratings also predict the same trend, where remittances to the Asia-Pacific region are expected to fall by 12% in the second half of 2020 compared to the same period last year.

According to the State Bank of Pakistan, in August 2020, remittances from Saudi Arabia amounted to about US$ 593 million, while the United Arab Emirates (UAE) and other Gulf countries contributed around US$ 409 million and US$ 226 million in remittances, respectively. Overall, remittances in August 2020 have declined by US$ 673 million as compared to those in July 2020.

As Pakistan's economy relies on remittances, especially from the Middle East, this potential drop can increase fiscal and current account deficits and negatively impact tax revenue collection. It is also important to note that job cuts in the Middle East appear to be targeting foreigners first; hence, jobless Pakistani expatriates would soon be forced to return home.