ISLAMABAD: The World Bank has projected a drop in remittance flows to Pakistan to $24 billion in 2023 and further drop below $22 billion with 10 percent decline in 2024, saying the growing economic turmoil sparked by a balance of payment crisis and high debt have led to a worsening loss of public confidence reflected in a diversion of remittances from formal to informal channels.
The bank in its latest report, “Leveraging Diaspora Finances for Private Capital Mobilization” stated that in Pakistan, low expectations of a return of positive economic growth as the International Monetary Fund (IMF)-supported programme takes effect, are likely to weigh on public confidence, leading remittances to decline by 10 per cent and drop below $22 billion in 2024.
“Formal remittance flows plummeted by 20 per cent in 2023 on top of a decline of five per cent in 2022. Remittance flows in 2023 are expected to drop to $24 billion”, the bank added.
The report further stated that the rupee depreciated sharply between early 2022 and early 2023, and the government’s attempts to limit capital outflows through import and capital controls diverted remittance inflows from formal channels, contributing to shortages of foreign currency.
Depreciation and exchange rate management policies have led migrants in Bangladesh, Pakistan, and Sri Lanka to take advantage of the black-market premia and transfer funds through informal and formal channels.
Despite strong employment of foreign workers in Saudi Arabia, given a push for giga-projects, outward remittances from there to destination countries were down by 13 per cent in the first half of 2023 compared with a year earlier.
The decline likely reflects post-Covid adjustments, as well as Saudi Arabia’s recent policy allowing foreign migrant workers to bring their families to the country when they work, possibly resulting in fewer remittances back home. This could have negative implications for remittance flows to Pakistan and most North African countries.
The report further stated that Pakistan, Bangladesh, Sri Lanka, and Nigeria have offered a small payment, either a fixed amount or a percentage (for large transactions), to intermediary banks to offset money transfer costs paid by remitters.
According to one study, the Pakistan Remittance Initiative was associated with a 13 per cent increase in formal remittance flows. Such incentives have little impact, however, in countries with large differences between parallel and official exchange rates.
In response to the increase in migration flows, several countries started imposing pecuniary or restrictive measures. El Salvador charges $1,130 to migrants from Africa and India, while Pakistan charges $800 to each Afghan asylum seeker waiting to depart to a third country.
The bank stated that the United Kingdom reported that Pakistan ordered all illegal immigrants to leave the country by November 1, 2023, or face deportation. Pakistan has been detaining large numbers of undocumented Afghans and then transporting them directly to the border.
The bank stated that Pakistan has a diaspora savings certificate now under issuance. However, the amount raised by developing countries via diaspora bonds so far has been minuscule compared to the volume of remittance inflows.
At almost $189 billion in 2023, remittance flows to South Asia once again are likely to exceed expectations, outstripping previous forecasts by $13 billion.
As in 2022, this remarkable increase is attributable entirely to remittance flows to India, which are expected to beat previous forecasts by $14 billion and reach $125 billion in 2023.
After growing at 12.2 per cent in 2022, growth in remittances to South Asia is likely to decelerate to 7.2 per cent in 2023. This regional average is the outcome of high growth in one-half of the South Asian countries (Bangladesh, India, Nepal, and Sri Lanka) and declines in the other half (Afghanistan, Bhutan, Maldives, and Pakistan).
The key drivers of remittance growth in 2023 are a historically tight labour market in the United States, high employment growth in Europe reflecting extensive leveraging of worker retention programs, and a dampening of inflation in high-income countries.
The slackening in remittance growth relative to 2022 is attributable to a near collapse in growth in 2023 in Saudi Arabia and Kuwait, and the halving of growth in the remaining GCC countries triggered by the drop in oil prices and production cuts in the Organization of the Petroleum Exporting Countries (OPEC)+.
As a share of GDP, there was wide variation in remittances across South Asia. At 27 per cent, Nepal continued to have the highest share of remittances relative to GDP in South Asia. It also featured in fifth place among countries that are most dependent on remittances globally. In comparison, remittances as a share of GDP ranged around seven per cent in Sri Lanka and Pakistan and 5.2 per cent in Bangladesh in 2023. In India, the share of remittances in the economy was only 3.4 per cent, despite its position as the largest recipient of remittances globally.
Copyright Business Recorder, 2023