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The remittance growth remained unabated in October. In Jul-Oct, the flow is up by 26 percent to reach $9.4 billion. This is against the WB and others who were projecting that remittances in economies like Pakistan would fall. The unexpected rise is not confined to Pakistan only; the growth is even more pronounced in Bangladesh where the remittances inward flow is up by 43 percent to $8.8 billion in Jul-Oct.

Interestingly, the flows growth in Bangladesh is similar to Pakistan – in both countries the inflow grew from Jun20 onwards and Jul20 was an exceptional month. This means some parallels can be drawn. There are numbers of theories circulating on the growth of remittances ranging from expats moving back due to job losses, expats are sending more money in need to friends and family back home, expats investing in real estate, limiting the hundi/hawala channels to shift the informal flows to formal sector, and less travel.

Scratching the surface, the most plausible reason for the abnormal growth in the remittances could be less travel. Results of informal surveys being conducted reveal that expats used to send money as hard cash to recipients at home through friends and family visiting the sender country. Since the travel is less, these people are using formal channels to send the money back. Similarly, the hundi/hawala business could be slow due to COVID and that could result in higher formal flows.

However, these factors would have zero impact on the total remittances – formal and informal. For example, if someone is sending $500 as cash to his family, the recipient here would convert it to PKR through an exchange company. Then the exchange company would sell this $500 to a retail buyer or to a bank. If it’s being sold to a bank, it will eventually land at SBP, if the bank has net positive cash.

The catch is that buyers of foreign currency in open market are less. People usually buy foreign currency for travelling abroad. Usually the money from informal cash recipient of remittances is being bought by travelers. The travel is much less in days of COVID. That probably is the key difference in overall formal and informal net flows. The inflows are similar to historic levels but outflow is falling.

That explains the higher supply of foreign currency in the market – this is evident from the fact that SBP’s forward/swap liabilities are falling – down by $919 million in October. This is one of the explanationsforthe currency appreciation in the last two months. PKR appreciation is partially explained by USD depreciation against other major currencies.

Now this travel flow is likely to remain low till the COVID fear is in the game. Once that is over, travel may start happening again and the cash sent through friends and family may revitalize and lower the official flows. The demand of foreign currency may not let that informal flows to come into the banking system.

Some say that people moving back is also a reason for remittances growth, as these people are bringing one-time higher amount back home – shifting partial or full savings to Pakistan. This would mean the average ticker size of remittances grows. BR Research channel checks confirm that there is some uptick in the average ticker size, but not significant. Higher amount could be due to sending higher money home as families here are facing a fall in real wages.

Whatever the reason, the remittances flows are now seemingly settling to a new norm. One may call it a COVID norm. The monthly inflow is increasing to $2.2-2.3 billion. This would mean the full year remittances may grow to $25-26 billion.

The yearly flow in FY21 could increase by $2-3 billion. Similarly, exports are growing as well. According to a leading exporter, the country’s export potential is of $2.2 billion monthly and many players are working on full capacity and also are in expansion phase. Exports can well grow by $2-3 billion as well. These two together adds $5-6 billion inflows and that is giving room to boost imports for gaining a growth momentum.


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