Staying over $2 billion mark for six months in a row, remittances in November 2020 are up again both on year-on-year (28 percent), and month-on-month basis (2.5 percent). The most striking is the year-on-year growth – all the five months of FY21 so far have posted double digit growth. Together, 5MFY21 remittances are up by 27 percent year-on-year, which is phenomenal during a global pandemic.
Covid-19 predictions for remittance inflows into developing countries, particularly, South Asia have been proven wrong so far as highlighted by the section previously. This is also recently been mentioned in “Phase II: Covid-19 Crisis through a Migration Lens” - World Bank’s Migration and Development Brief where it highlights that three large recipients of remittances — Mexico, Pakistan, and Bangladesh stand out as exceptions to the general pattern in remittance as these countries escaped a decline in remittance inflows in Q2 of 2020 and registered increases in Q3.
While the regular religious festivities and events are not likely to have been the reason for staggering growth, in the past 6 months the growth in remittances has been attributed to various reasons such as negligible Hajj expenditure; the alleged return of expats from host countries along with their savings due to economic downturn brought by oil prices and Covid-19; and diversion of informal remittances towards formal channels as travel and borders remained restricted as well as the tightening of informal money markets. The Migration and Development Brief attributes the spike in July to the Hajj effect, as well as government’ s efforts such as tax incentive creating the push in following months. For inflows from UK particularly, it says that relocation of money transfer operators to outside the United Kingdom after Brexit could have been a factor for increase of remittances from the UK. It also acknowledges the possibility of diversion of remittances from informal to formal channels due the difficulty of carrying money by hand under travel restrictions.
Remittance inflows during 5MFY21 have mainly been sourced from the key four regions: Saudi Arabia, United Arab Emirates, United Kingdom and United States. However, the growth in inflows from USA and UK stood over whopping 50 percent, which is likely due to higher amounts remittances being sent towards investment incentives set by the government; or people sending more money to those in financial stress at home.
This continuous growth in remittances has also raised FY21 expectations that range between $25-26 billion by various brokerage houses. However, the headwinds exist; Pakistan receives over 60 of remittances from the Gulf and the Middle East region, which is likely to take a hit even if the relationship do not go sour because of indigenization and focus away from construction sectors. Also, the questions are what will happen after the pandemic? If the argument that the informal flows are converting to formal flows, government should focus on remittance infrastructure and further incentivize digital money transfer and mitigating factors that prevent customers or service providers of digital remittances from accessing banking services.