Remittances: exuberance continues

The upbeat momentum of home remittances continues. The toll stood at $2.5 billion in Oct21 – eight consecutive months of remittances over $2.5 billion. This is perhaps the new normal. Unless – and this is a big if - the opening of religious travel to Saudi Arabia may bring some change. The home remittances are up by 12 percent to $10.6 billion in 4MFY22.

The higher growth is emanating from the west – US, UK, and EU while the growth from GCC is largely muted. This trend has continued from last year. The job opportunities in the Middle East are not growing and perhaps people are coming back on net basis. The higher growth from West is probably due to spillover of stimulus given in these countries, higher influx in the real estate market in Pakistan, and tightening (due to COVID and FATF) for grey channel.

In FY21, the inward remittances were up by 26 percent to $29.4 billion. The higher increase was from US and UK – each at 58 percent to reach $2.7 billion and $4.0 billion. Now the growth in 4MFY22 is on top of it. In 4MFY21 the remittances from the US almost doubled from the levels in the same period in FY19. The situation from the UK is not far behind. Its hard to tell how long this growing momentum shall continue.

The worry is slowing down in the growth from Middle Eastern countries. In FY21, the inflows from UAE grew at a decent pace of 9 percent to $6.1 billion. Now the growth is limited to mere 4 percent in the 4MFY22 and in Oct 20, toll fell by 10 percent from the same period last year. The story of KSA is similar where there was growth of 16 percent to $7.7 in 4MFy22 and now it’s down by 1 percent to $2.7 billion in 4MFY22.

The situation is so far so good. The growing imports are putting pressure on the external account while the remittances and exports both are growing this year so far, but the import growth is outpacing them. Last year, the current account surplus (in most of months) was due to exceptional growth in remittances while the imports were lower. The remittances continue its momentum on a high base. But it’s not enough to bring sanity in the external account.

The chances of remittances to grow higher than this pace is little and with opening of Hajj/Umra travel the current growth could be compromised. Nonetheless, SBP is doing a decent job of keeping the shift from informal to formal (last year) to stick. But not enough to calm growing current account deficit.