For almost a year, studies and research did not match the trend of remittances into developing countries particularly the South Asia region. While predictions and forecasts showed that the one year into the pandemic these foreign inflows into countries including Pakistan would drop due to the idiosyncrasies of the world hit by the COVID-19 pandemic, the reality has been different. Not only remittances to some regions have continued to grow, remittances to Pakistan and Bangladesh have seen record numbers.
The trend has been captured finally in World Bank’s recent Migration and Development Brief. The latest edition Resilience: COVID-19 Crisis Through a Migration Lens highlights how remittance flows to low- and middle-income countries have proven to be resilient during the COVID-19 crisis defying all expectations and projections. In actuality, remittances to low- and middle-income countries have only dropped by 1.6 percent year-on-year in 2020, which has been a key lifeline for many countries during the Covid crisis when other forms of foreign inflows like foreign direct investment has been abysmal.
The key drivers of remittance flows and their resilience during the Covid crisis have been the migrants’ desire to help their families and cut consumption or drawing on savings; fiscal stimulus in host countries that resulted in better-than-expected economic performance; a shift in flows from informal to formal channels with greater use of digital remittance channels as hand carry was affected by travel bans and lockdown; and cyclical movements in oil prices and currency exchange rates- all of which very well reflect what this space has been highlighting for the growth witnessed in remittances to Pakistan. At the same time, the cost of remittance in South Asia is also among the lowest, which has kept the inflows going.
For Pakistan and Bangladesh particularly, the WB brief also points despite factors such as the cancellation Hajj, floods in Bangladesh in July 2020, and tax incentives offered to intermediary banks to attract remittances, remittances continued to increase in these countries even in the initial period when almost all the countries were affected.
The significance of the remittance initiatives by the governments is even more pronounced as the year 2020 saw a staggering decrease in the deployment of workers to key remittance corridors like the GCC countries, Malaysia, China etc. Deployment of workers as per the WB brief declined by 64 percent from Pakistan, 68 percent from Bangladesh, and 70 percent from Philippines. Saudi Arabia – a key host country for expats from Pakistan – alone saw around a quarter of a million people leaving in the third quarter of 2020. And the data also shows that Pakistan on the whole saw the number of migrant workers drop from 625,000 in 2019 to 225,000 in 2020 largely due to a rise in returning migrant workers from the GCC countries.
Overall, remittances to South Asia increased by about 5 percent year-on-year in 2020 largely driven by a surge in remittances to Pakistan and Bangladesh. Remittances to Pakistan were seen increasing by over 17 percent year-on-year to a record high of $26.1 billion; while those to Bangladesh growing by over 18 percent, while India and Nepal experienced a small drop in 2020. At the same time, the cost of remittance in South Asia is also among the lowest, which has kept the inflows going. The ongoing trend shows that while the effects of Hajj cancellation/ vaccine restrictions for Hajj will continue to affect remittances, the tax incentives to convert informal remittances to formal remittances will keep the remittances increasing.
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