Good news: the workers’ remittances, one of Pakistan’s major non-debt-creating forex inflows, didn’t show a yearly decline in FY18, as per central bank data released earlier this week. Not-so-good news: the inflows remain stuck below the $20 billion threshold – a target missed in FY18 as well – and grew only a paltry 1.4 percent year-on-year to reach $19.62 billion in FY18.
The month of June was especially disappointing, as the monthly remittances went down 10 percent month-on-month and also down 13 percent year-on-year to settle at $1.59 billion. Mind you, June was an Eid month and these lackluster inflows in such a month of high festivity are out of character for Pakistanis. Some overseas Pakistanis may be tempted to hold back their monies in the hopes of an even lower PKR in coming weeks. But that alone cannot explain the double-digit drop.
Looking under the hood for all of FY18, the sluggish growth has resulted from weak inflows coming in from the GCC region – hardly surprising. Saudi Arabia – which accounted for about a quarter of overall inflows – continued to bother in FY18 as well, with inflows down 11 percent year-on-year. The UAE inflows – accounting for 22 percent of the total inflows – showed marginal growth of 0.12 percent. The rest of the GCC – contributing some 11 percent to the remittance pie – saw its inflows go down 7 percent.
Several factors seem to be pinning down GCC remittances, especially from the Saudi market. They range from host-government policies that promote local employment to a shift in the Gulf economic landscape that demands a shift in skill profile. (BR Research has contextualized the decline in GCC remittances in “Pakistan’s remittance challenge”, published June 25, 2018).
Despite the fact that bulk of Pakistan’s labour exports are to the GCC, the declining GCC inflows haven’t alarmed the government much. Amid reports of workers coming home from the GCC, there has been a slowdown in fresh registrations of Pakistani workers heading for overseas employment. From 0.95 million new workers registered in 2015 with the Bureau of Emigration and Overseas Employment, the figure had dropped to 0.5 million by 2017. The bulk of the decline has been noted in labour – both skilled and un-skilled – going to Saudi and UAE markets. Data for Jan-May 2018 suggests a continuation of the trend.
The GCC accounted for a shrinking, 58 percent of the remittance base in FY18, with collective inflows coming in $611 million less than in FY17. Some respite has come from the West world. It appears more Pakistanis are now using the formal channels for repatriation, thanks to a mix of tightening laws and better payment facilitation.
For instance, inflows from the US and the UK – each accounting for roughly 14 percent of the overall remittances – shot up by a yearly 11 percent and 18 percent, respectively. Inflows from the EU countries, roughly three percent of overall inflows, jumped a whopping 36 percent year-on-year. These incremental inflows helped offset the GCC decline and led to a modest growth in FY18 remittances.
On a primary level, remittances are still a valuable source of forex. On a secondary level, they provide a needed boost to aggregate demand, as their share in GDP has remained between five and seven percent of GDP in the last decade. Yet, their negative real growth in recent years has made them less influential in the macroeconomic arena.
During FY11 and FY16, remittances helped finance, on average, 98 percent of the trade deficit in goods. Back in FY17 when weaknesses started emerging in this account, this financing fell to 73 percent.
Now in FY18, remittances won’t be able to fund more than 65 percent of the expected deficit. If exports don’t pick up substantially and resultantly remittances are to continue shouldering the deficit burden, one hopes the new government will come up with measures to shore up the inflows in the medium term.
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