Remittances sent home by overseas Pakistanis rose 25 percent in 1HFY21; that’s the highest first half growth since FY03. Not even the launch of Pakistan Remittance Initiative in August 2009 led to such phenomenal growth in FY10 or in the immediately ensuing years; the highest growth reported in the comparable period of those years were 24.5 percent in 1HFY10. Surely, something is happening, which warrants significant attention considering the circumstances.
Back when Covid-19 had just hit, and Pakistan and other countries were undergoing lockdowns of various forms, the economics community widely expected worker remittances to drop substantially due to paralyzed economic activities. The World Bank had expected a decline of 20 percent in remittance flows to Pakistan.
World Bank’s expectations and research on remittances have hardly ever been reliable, as the difficult-to-kill remittance to India saga proved very well. But nevertheless, most economists and analysts had expected to drop soon after Covid-19 hit economies hard – a fear that did materialize in April-May 2020 as well. Since then, however, the tides seem to have changed.
A host of reasons have been offered by a variety of circles for such unexpected growth in remittances, a growth which has averaged 26 percent year-on-year since June 2020, despite the fact that according to Bureau of Emigration and Overseas Employment (cited in SBP’s latest State of Pakistan’s Economy report), about 125,000 Pakistani workers returned from abroad from the time when pandemic started till November 2020.
In the absence of comparable year-on-year data, one can’t really tell whether or not these 125,000 returnees constitute a big number, but that’s the number many people are citing to try proving the impact of pandemic on overseas workers. When read with nearly 63 percent year-on-year decrease in workers gone abroad, it surely doesn’t inspire confidence in remittance outlook.
The central bank, in its latest report, partly attributes this growth to “orderly foreign exchange rate conditions throughout the pandemic”. However, “some other possible factors behind this favorable development” include air travel restrictions that enforced further formalization of remittance flows; pandemic related fiscal support that supported expatriates’ incomes; and Covid-related incentives to formalize remittance flows, such as increasing reimbursement of TT charges, and marketing expenses incurred by banks and other related FIs.
But the fact is that these are all ‘possible’ reasons, as the central bank report correctly articulated, and, as earlier argued in this space, there is no or insufficient data to prove any of the theories proposed by the central bank or any other economic observer. (For details, see BR Research’s Remittance narratives Jan 6, 2021).
This lack of research shouldn’t be construed as a cry of idealistic researchers or a pedantic academic critique. The fact is that when labour exports (remittances) are almost equal to goods exports (remittance was in fact higher than goods exports in FY20), one must know the precise reasons and not possible reasons to be able to shape the right policy and/or prepare for the bursting of bubble, if that is what ongoing remittance growth emerges to be in the ongoing pandemic and the post-pandemic realities.