While rupee weakening has been gnawing the economy, the gyrations of the rupee-dollar exchange rate has affected remittances through its impacts on consumption and investment objectives.
The surge in remittances over the years can in part be explained by the sale-effect where the migrants send in their savings to purchase assets back home. The depreciation of South Asian currencies has been highlighted an important factor in spurring remittance growth in the region by the World Bank in its latest forecast.
At the same time, higher oil prices have supported the outflow of remittances from the GCC countries to countries especially in the South Asian region. This has rendered positive for Pakistan as around 60 percent of the precious foreign exchange from the residents abroad flies in from Saudi Arabia, UAE, Dubai and other GCC countries.
Besides the rupee weakening and remittances moving somewhat in tandem with the oil prices, another key driver of remittance flows is the cost of sending.
Generally in ascendant in developed world, the average cost of remitting to Pakistan has been significantly lower than the other regions. Hard earned cash entering the country from Saudi Arabia and United Arab Emirates stand among the least costly corridors.
Based on World Banks latest migration and development brief, the global average price of remittances has skidded from 9.81 percent in CY08 to 8.96 percent towards the close of CY12. Regional disparities show that sending money to South Asia at 6.5 percent of the amount transferred is half of what it takes to send money to Sub Sahara Africa, the most expensive region.
In short, a cocktail of the three, oil, exchange rate and price, explains most of the ascendant in the foreign currency receipts which increased by 14 percent YoY during the first five months of FY13.
The World Bank has projected the remittance flow to developing countries to grow by 6.5 percent to reach $406 billion in CY12 with specific emphasis on South Asian giants. With the receipts reaching $12.85 billion during 11MCY12, the forecast for Pakistan to cross $14 billion mark by the end of 2012 seems destined.