Remittance inflows are growing closer to the full-year FY19 target of 15 percent. Year-on-year growth clocked-in at 6 percent, taking the 7MFY19 year-on-year growth to 12.2 percent. Salud! What explains this rise and whether is it sustainable in the long run. Those are some big questions that need some answers.
To point the obvious, growth in remittance inflow in the year-to-date mainly comes from the US and UK, jointly contributing about 62 percent to total increase in inflows in 7MFY19. Malaysia contributed another 21 percent. Contributions by Saudi Arabia, the UAE and Other GCC countries (Qatar, Oman, Kuwait & Bahrain) are thinning.
To find out the reasons behind growth from the US & UK, let’s turn to the central bank’s most recent State of Economy report which points to one key reason. That “increased economic activity in the developed economies may have incentivized the Pakistani diaspora in these countries to remit more to their families”. Here the operative word is “may” i.e. we don’t really know for sure. If the central bank isn’t sure, then who is?
What is known for sure is that there is a lot of government support to help grow remittances. To that end, there are hopes for early implementation of Qatar’s decision to allow 100,000 workers from Pakistan, and also from Saudi Arabia’s agreement to reduce its visa fee for Pakistani workers following a request from Pakistani government. These are in addition to a host of other measures taken by the central bank whose list includes various sorts of subsidies in Business to Customer (B2C) and Customer to Business (C2B) transactions.
To what degree and extent can these props keep increasing remittances in the long run when the quantity and quality of Pakistan’s labour export continues to decline? Save for the case of Qatar where Pakistan’s labour exports have grown 80 percent year-on-year in CY18, exports to other major destinations continue to remain weak. (Memo: UAE, Oman, Qatar, & Saudi Arabia held 94% share in Pakistan’s total labour exports in CY18 according to Pakistan’s BOEO)
Although, things improved in the case of Saudi Arabia in CY18, considering that the kingdom is moving towards service sector economy where Pakistanis don’t have a particular edge compared to the hard labour economy, any growth in labour exports to Saudi Arabia cannot be expected to be promising given the current state of vocational training affairs. The quality of Pakistan’s labour exports has also fallen if one considers that labourers and drivers exported abroad had a combined share of 53 percent in CY18 as against 47 percent five years ago.
As is the case with many other aspects of Pakistan’s economy, price incentives (e.g. taxes, subsidies) and ease of business (e.g. quicker process time) can achieve only so much, since they ought to be crutches for mainly short-term use. Structural reform is the need of the hour, which in this case, inter alia, has to be vocational training by the provinces, and government to government labour department liaison at the federal level. Just flogging the corruption horse won’t provide structural impetus to remittance growth!
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