Remittance flows in the developing world including Pakistan have remained more resilient compared to other major forms of inflows. While foreign direct investment has frittered away drastically following a thriving period from 2004 to 2008, remittances have been agile and rising in Pakistan.
Remittance flows are one good statistic that has not shown any signs of slowdown in a very long time, thanks to the multitude of Pakistanis residing abroad sending back precious foreign exchange to the country. With the close of 1QFY13, the overseas Pakistanis remitted about 3.6 billion dollars, nine percent more than what they did during 1QFY12.
Where these hard earned inflows have helped in reining in the free fall of an already depreciating rupee, they have also bridged some of the gap between receipts and payments of foreign exchange. It is maybe due to rising and consistent remittances that the country has been able to post high foreign exchange reserves in spite of rising import bills.
With remittances crossing the psychological mark of 13 billion dollars for FY12, and a sizeable amount for the first quarter of FY13, hopes for FY13 are upbeat. The receipts for FY12 grew by nearly 18 percent YoY, while the overseas Pakistani workers remitted almost 3.6 billion dollars during 1QFY13, flourishing by 9.16 percent compared to the same period last year.
With Saudi Arabia and UAE countries being the biggest sources of these receipts, almost 90 percent of the repatriation grossing around 3.2 billion dollars during 1QFY13 came from the big five: Saudi Arabia, UAE, USA, UK, and other GCC countries.
Generally in ascendant, the foreign exchange from overseas nationals has also been bolstered gigantically by the facilitation efforts of Pakistan Remittance Initiative and SBP to enhance the flow of remittances through formal channels.
In times of economic downturn worldwide, the resilience in home remittances compared to the FDI and net official development assistance (ODA) in Pakistan has originated from the fact that remittances are a small part of the migrants total income. So they continue to send in this valuable money even during volatile times.
Also, the phenomenon of persistence in remittances is directly proportional to migration as well as linked to the fact that these receipts are sent by all the migrants over the years and not just new migrants of the last year.
However, how long can the country rely solely on these foreign exchange inflow greatly depends on the global slowdown, the rising uncertainty in the western countries particularly EU and the geopolitical tension in Middle East, all of which have greatly increased unemployment in these regions.
For the moment, the growth in remittances is a fine support to the central bank along with the single digit inflation and a further reduction in interest rates.