EDITORIAL: One economic indicator that surprised many during the pandemic was home remittances. Intuitively, the number should have gone down as lockdowns across the world resulted in job losses. But the number is reaching an all-time high for a few economies. The bar is up by 29 percent to $24.2 billion in 10MFY21 for Pakistan. The story in Bangladesh is even better – inward remittances have jumped 39 percent to $20.7 billion in the same period. Less travel and spillover of money pumped by developed countries are prime reasons for the spike in home remittances to countries like Pakistan and Bangladesh. In Pakistan, remittances are now higher than exports, becoming the single biggest foreign exchange earner for the country. The increase is observed across the board. Saudi Arabia is the biggest sender, and the inflows are up by 20 percent to $6.4 billion in 10MFY21. The UAE comes at number two and the inflows are up by 8 percent to $5.1 billion. Overall flows from GCC countries have increased by 13 percent to $14.2 billion. The inflows from rest of the world (mainly the US, the UK and the EU) increased by a whopping 58 percent to $10 billion in 10MFY21. Statistics are implying that it is not just the conversion of remittances from informal to formal sector that is explaining the rise, but also a pronounced increase in money sent by residents of rich countries that has contributed to what is almost akin to a helicopter dropping money in our lap. One reason for a higher increase in remittances from the US, the UK, and the EU is reduced travel but the other likely factor is the generous stimuli offered to households in rich countries. Consumer spending is much lower as demand is suppressed during lockdowns and mobility restrictions. These stimulus checks abroad might be supporting families here at home under stress (due to lockdowns and economic slowdowns in Pakistan). In turn, people here are investing in real estate and other asset classes using these incoming remittances.

In 2009, Pakistan Remittances Initiative (PRI) was launched. The incentives for sending money through formal channels were enhanced under the initiative. The informal channel was always cheap and quick. The conversion rates were better while transaction charges minimal. Since 2009, on and off, the government has subsidised bank charges of senders and helped expedite the processing time. Home remittances therefore grew at 14.3 percent from 2009 to 2016 before these began to recede. Now in the midst of pandemic, another wave of high growth is being witnessed. This time no incentive for formal flows was required as the growth was mostly triggered by drying up of informal channels.

Many people from the Middle East used to send home remittances as cash to families at home through friends and family travelling to their country. Additionally, the Khaipias were also used as an instrument to send money back home. There is also the case of under/over-invoicing of imports/ exports to net off through remittance flows. With limited business of hundi/hawala, that element reduced dramatically as pandemic raged in full force and travel halted. The question now is: how long will this momentum continue. As long as travel remains restricted, the upbeat momentum in formal remittances will continue. Many small senders who never experienced formal channels in the past might probably stick to formal channels. Previous reticence may be associated to the fear of documentation, and a general distrust in formal banking systems. That fear is now assuaged and trust built. State Bank of Pakistan (SBP) and banks in Pakistan need to make official channels swifter and more seamless. There are nearly 9 million Pakistani expatriates in the various parts of the world. The money that is sent by them is likely to remain the biggest foreign exchange earning source for country. It has been learnt that SBP is conducting a research to find out reasons behind the uptick in remittances. It is, therefore, required to take steps aimed at protecting and preserving the current momentum of remittance inflows.

Copyright Business Recorder, 2021