- The central bank said that it has also significantly revised its forecast for remittances for CY20, from an initial projection of a 23 percent decline to a growth of 9 percent.
The growth in remittances from Overseas Pakistanis despite the ongoing COVID-19 pandemic, has been a bright spot for Pakistan's economy.
The State Bank of Pakistan (SBP) in its latest The State of Pakistan's Economy - First Quarterly Report 2020- 2021 was of the view that with Covid-19 paralyzing economic activities across the globe from March 2020 onwards, developments were initially forecast to lead to a steep drop in the flow of remittances to the recipient economies.
However, with the passage of nearly six months since the Covid outbreak (from April 2020 onwards), these concerns have been erased, as workers’ remittances to Pakistan grew 31.1 percent YoY to a quarterly record of US$ 7.1 billion in Q1- FY21, with all-time high monthly flow of US$ 2.8 billion realized in July 2020.
The central bank said that it has also significantly revised its forecast for remittances for CY20, from an initial projection of a 23 percent decline to a growth of 9 percent.
The SBP in its report pointed out that a major reason behind the rise in remittances was the orderly foreign exchange rate conditions throughout the pandemic, “which helped create a conducive environment for remitters to send money to Pakistan.”
Some other possible factors behind this favorable development were:
Air travel restrictions: Formalization of informal remittance flows and build-up in savings
The report said that air travel used to be a major source of cross-border funds transfers. The informal channel involved sending funds (cash) through friends or family members travelling from one country to another. However, with the severe restrictions on air travel, funds transfers through both these channels came to a near-halt, and likely played a major role in pushing expatriates to adopt formal banking channels to remit funds back home.
Furthermore, the air travel restrictions, including curbs on religious travel, likely contributed to a build-up in savings with the overseas diaspora. As a result, expatriates were able to remit back higher funds.
Post-outbreak fiscal support has helped shore up expatriates’ incomes
Secondly, the unprecedented fiscal and monetary support measures in the world’s top migrant-destination economies in the western hemisphere and the Middle East have likely played a key role in supporting workers’ cash flows, either via continued provision of wages or through cash transfers, said the SBP report.
The report stated that it is likely that many migrants, including those from Pakistan, benefited from these fiscal measures and were able to continue sending funds back home.
Covid-related incentives to formalize remittance flows
The State Bank report highlighted that the after the Covid outbreak, Pakistan announced incentives to attract remittances via formal channels. The SBP announced new measures on April 15, 2020, to encourage banks and exchange companies to process higher amounts of remittances.
These included a doubling in the rate of reimbursement for telegraphic transfer (TT) charges; and the introduction of a tieredbased system to reimburse marketing transactions (where higher growth in remittances would lead to higher reimbursement of marketing charges).
The banks were also encouraged to promote digital channels for sending and receiving remittances and to introduce incentive schemes for their own customers.
Digitization and other longstanding efforts to formalize inflows
The report was of the view that Covid pandemic has accelerated the adoption of digital channels for service delivery across the world, including in Pakistan; these efforts have also likely contributed to the recent rising trend in remittances.