Revamping remittances

As critical as they are, the remittances have been sluggish lately. After a weak November, December 2018 figures from the State Bank of Pakistan show that the inflow of these foreign exchange suffered a decline of two percent, year-on-year, while the month-on-month growth was only five percent. There has been no significant movement in any of the corridors; inflows from the key host country, Saudi Arabia continue to taper along with a marked slowdown in UAE and other GCC countries. Remittances from USA and UK continue to illustrate the sanguine growth they have been depicting for a while now. On aggregate, the picture is a bit better; 1HFY19 remittances increase by around 10 percent, year-on-year, which is the highest six-month growth in the last 4 similar periods.

That remittances are crucial for the economy cannot be emphasised more; the government needs to meet its current account shortfall, and with exports still not showing any exuberance albeit the tax and tariff reliefs in the recent incentive package as well as significant rupee depreciation, attention to remittances is warranted.

The government has initiated a few plans to increase the flow of home remittances. One is the incentive scheme, which is a performance-based scheme developed to enhance the marketing and awareness efforts for home remittances’ products and services of local banks and exchange companies. The scheme entails Re1 on each incremental US Dollar to the banks or the exchange companies if they produce a growth over 15 percent in remittance in FY19 versus FY18. Other efforts by the government include the Pakistan Banao Certificate and the Overseas Pakistanis Savings Certificate, both of which aim to tap savings from the overseas Pakistanis.

Despite these efforts, the growth in remittances is still wanting. Things need to go up a notch. Industry sources point to the existence of the Kerb market as an indicator of continuing channeling of the precious foreign exchange through informal means.

The latest crackdown on ‘Hawala’ and ‘Hundi’ should yield positive results for official remittances through the formal sector. Other factors that are believed to be hampering growth in remittance inflows are the falling labor exports and the slump in the property market post the investigation of some key real estate projects that has shattered confidence of the overseas Pakistanis looking for investment avenues – real estate has been a prime sector for investment by the overseas residents.

At the same time, there is hope in the market that the new plans and schemes will lure in foreign exchange; it’s just that the remitters are waiting for these schemes to initiate in full swing. While this might make sense for those sending money from some of the developed countries where the overseas Pakistanis have white collar jobs, does it make sense for the vast majority from the largest corridors with blue collar jobs? Do they have the requisite awareness? Is their demand elastic enough that they wait for investment schemes to launch? These are questions that could dissipate the above argument.