The home remittances growth has remained unabated. The monthly inflow in April-22 for the first time in the history of the country has crossed $3 billion – twenty years ago; the yearly number was used to be less than $3 billion. That is how the remittances became one of the prime financiers of the import-led consumption boom in the last two decades. At the same time, intuitively, increased remittances meant people had more money to spend and invest which then fed the demand for goods and services which consequently led to a growth in imports, putting pressure on the current account. Economists often term such a paradoxical phenomenon a Dutch Disease.
Nonetheless, home remittances are now the biggest single source in the current account. Two decades back, goods exports were five times of remittances, and today both are almost equal. For the past two years, the lockdowns due to COVID (owing to less travel) channeled the informal flows to the formal banking sources as hundi hawala system thinned due to reduced demand.
The spillover of generous stimuli in the west also resulted in higher remittances in the developing economies. In addition, the acceleration of remotely working culture has enhanced the freelancers’ markets in developing countries catering to the work needs of those in developed. This must have some positive bearings on home remittances. Meanwhile, the real estate boom may also have attracted flows.
The higher growth in remittances in 2020 and 2021 was a phenomenon in many developing countries in Latin America and South Asia. In this region, the growth in Bangladesh was in tandem with Pakistan in 2020 and 2021. Experts fear that with travel and tourism opening back up post-covid, the remittances could decline in these countries. That did happen in Bangladesh where 10MFY22 inflows are down by 17 percent to $17.3 billion.
However, the story of Pakistan is different. Here the toll is further up from a high-base by 8 percent to $26.1 billion in Jul-April FY22. And April is the historic month with monthly flows crossing $3 billion for the first time. This growth is despite the fact (on gross basis) the number of Pakistan workers registering abroad is declining. This is even though some expats threatened to lower the inflows due to ouster of their beloved leader IK. One reason for higher numbers in April is seasonal Eid and Ramzan flows.
Nothing could stop the growth in remittances so far. The credit must go to the outgoing PTI government whose leadership focus was to facilitate and respect expats. They responded by sending higher sums. Then the efforts of SBP to facilitate expats sending money home through normal channels did work well. Back in 2009, the Pakistan remittances initiative resulted in double digits growth for a few years before slowing down in PMLN time. And the jump is again visible.
In 10MFY22, the inflow from US has the highest growth in top sending countries – up by 20 percent to $2.6 billion. This is followed by UK with 10 percent growth to $3.7 billion. Flows from the top sender, Saudi Arabia almost remained flat (up by 2% to $6.4bn). Then there is a decline of 4 percent to $4.9 billion In UAE. The growth from EU countries is even better than the US – up by 27 percent to $2.8 billion.
The overall remittances are geared to easily cross $30 billion this year. Exports trajectory is similar. Services exports are shining as well. The growth in both exports and remittances is healthy and contributes towards high economic growth. However, the gap between imports and these two combined is growing in absolute terms and that is a point of concern. Let’s see how remittances perform next year under the new government.
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