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The four-month number for workers remittances inflows are in, and the situation does not look very good so far. By the end of 1QFY20, remittances flows had slipped by 1.4 percent year-on-year; October has added to the blues when the flows dropped by 2.9 percent, taking the 4-month drop to nearly 2 percent. In other words, October drop in remittance inflows alone has contributed about 43 percent to the total decline in remittance flows so far.

The reasons behind this fall appear to macroeconomics of the oil-producing region and perhaps of Pakistan’s that have offset the impact of efforts being taken to reduce the cost of remittances while increasing the number of tie-ups with banks and agencies in the origin countries.

Since FY19, the government including those led by the Pakistan Remittance Initiative, has been taking a number of measures to incentivize overseas Pakistanis to send remittances through formal channels. The list includes bank-led marketing campaigns in labour camps, exemption of WHT on cash withdrawals from PKR accounts that are solely fed by foreign remittances, and the launch of innovative technological platforms.

These efforts, however, can only do so much, when regional economies aren’t doing too well. For instance, the fall in remittances from Saudi Arabia can be reasoned to the slowdown in the kingdom’s economy. The IMF expects Saudi Arabia’s economy to grow by a meagre 0.2 percent this year, down from an earlier estimate of 1.9 percent, mainly because of oil output cuts. Oil related blues is also responsible behind the fall in remittance from other GCC countries.

But the fall in remittance from Dubai is not very clear. According to Pakistan’s central bank, remittance from Dubai fell by $98 million in 4MFY20, which equals about 71 percent of the total decline in remittance in this period.

Granted that exchange rate depreciation may have a role to play. A dollar remitted in 4MFY19 bought goods worth Rs126.26 in Pakistan; those goods are now worth Rs139.29 at an average (Jul-Oct) CPI of 10.32 percent. However, the fact that a dollar remitted in 4MFY20 fetched Rs157.4 on average (due to PKR’s depreciation), may be read as lesser need for remittance dollars for monthly household consumption.

But this still doesn’t explain such a big decline in remittances in Dubai alone (8.8% fall in Dubai remittance). Dubai may not be growing as fast as it was earlier in the decade, but it is growing better in FY20 (Dubai’s fiscal year is in fact calendar year). According to S&P Global’s analyses, Dubai’s economy is expected to grow 2.4 per cent in 2019, compared to 2 percent in FY18 on the back of increased economic activity associated with Expo 2020. More on the Dubai conundrum later!