While the upbeat momentum of home remittances continues - with 5MFY22 aggregate close to $13 billion up by 9.7 percent year-on-year – the monthly tally stood below $2.5 million and lowest since February earlier this year. Not only that, monthly remittances’ inflows have been gradually falling in the last four months. Home remittances in Nov-21 were flat year-on-year, while down by 7 percent month-on-month to $2.35 million.
Remittances to Pakistan have stood the test of time, continuing to prosper even during Covid pandemic. Growth in remittances has come from western countries, particularly US, UK, and EU, while the flows from Middle East and the GCC countries have also picked up compared to previous years. SBP’s Annual Report FY21 highlights that from March 2020 onwards when lockdowns were first imposed, FX inflows under remittances have exceeded goods exports, with remittances financing over 97 percent of the country’s trade imbalance in FY21. This not only helped build up FX reserves but also helped government reduce external financing requirement.
Another factor that has helped the country keep up its remittance flows has been the air travel restrictions and the ensuing consequences. The curbs on international air travel in general and the incentives and efforts by the government and the central bank have helped the channelization of flows via formal channels, and reduce the flow through grey channels.
Another reason cited by the central bank - also highlighted in this section many times – is the increase in saving rates in advanced economies thanks to fiscal support provided in those countries during pandemic helped migrant workers send more money back home including Pakistan. At the same time, USD depreciation against multiple currencies has also contributed to an increase in remittances as migrant workers have more to send back home.
While the World Bank’s recent assessment also applauds the resilience of home remittances to Pakistan where globally some decline was witnessed, it highlights some transitory factors that could mean a slowdown in remittances is in the offing. For example, the rise in inflows is due to the situation in Afghanistan. Afghanistan’s fragile situation resulted in increase in remittances for Afghan refugees in 2021. Besides, the pace of growth in remittances could also falter once Hajj and Umrah travel is opened, as these savings have been a big source of what has been sent back home to the families in the last two years.