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EDITORIAL: The feel-good factor provided by high remittances for an unusually long time - exceeding $2 billion for eight months in a row now - is appreciated but the government should be careful not to get ahead of itself lest it reads too much into, perhaps even begins to rely too much on, what will most likely turn out to be a short-lived trend. The banks as well as the State Bank of Pakistan (SBP) and independent economists are still trying to make sense of this continuing pleasant surprise to the upside. And the best they have come up with so far is that Covid-19 has cut down travel drastically. This has brought about a substantial reduction in the old practice of people carrying cash back home and it has also paralysed the hundi/hawala system that has forced increased reliance on formal channels of international money transfer.

Yet there's only so long this trend can provide ammunition for cheerful monthly tweets from the prime minister and senior members of the federal cabinet. Things should be fine, quite ironically, as long as the second wave of the coronavirus stays strong enough to keep international travel in check. But what is to happen once the vaccinations begin to produce results and the world slowly begins to emerge from lockdowns, in varying scope, pretty much everywhere? It's not as if formal banking channels did not exist before the pandemic, it's just that people in most cases didn't bother to follow the law simply because they weren't forced to do it. Besides, a big chunk of Pakistanis working abroad, especially in the Gulf countries, are from lower income classes whose families haven't even had bank accounts in Pakistan till now. What's to stop them from going back to their old ways once widespread travel resumes and they don't really have to go out of their way to be transparent about their transactions?

Already there are signs that the uptrend might be beginning to lose momentum. Remittances grew 19 percent year-on-year this January and are up about 24 percent so far this fiscal, but January's $2.3 billion figure was slightly lower than December's $2.4 percent - a month-on-month decline. Could it be that just as travel started to reopen in phases the bulge in remittances also plateaued? There's also the fact that Pakistanis have lost jobs in most countries in very large numbers, just like people from all other countries since the coronavirus pushed the international economy into recession, so there's only so long they can earn enough to keep sending back more money than before.

The World Bank took note of the rise in remittances to Pakistan quite early and, at that time, attributed it to very large numbers of people losing their jobs and bringing back their life-savings. Still, for some reason, it expected this trend to last at least a couple of years. Now, even though remittances have proved surprisingly resilient so far, it seems as if this particular estimate might have been a little optimistic. Because unless the countries where most Pakistanis send remittances from, like the USA, Canada, many in the EU, and practically all in the Gulf Cooperation Council (GCC), experience miraculous recoveries and re-hire all the Pakistanis they have had to lay off, and then those Pakistanis remain committed to formal money channels for the good of their country's official reserves, there's precious little to back this trend for the long, even medium, term.

So while authorities celebrate the rise in remittances, and very rightly so, they must also make realistic estimates about just how long it will last and just what they are going to do to support the current account once remittances begin to slide. The good news is that resumption in travel will also mean more trade, so the government should keep its focus on enhancing production and export. The International Monetary Fund (IMF) bailout programme has thankfully been revived so it now has a very precious window in which to enact reforms that just might add enough value to our traditional export mix to substantially improve our trade revenue. Appreciating the remittances and doing whatever is possible to keep them on the high side is all very good, but to expect them to stay up there for too long would not be a very smart idea.

Copyright Business Recorder, 2021