Fall in workers' Remittances

According to the latest data released by the State Bank on 12th November, 2019, home remittances sent by overseas Pakistanis declined slightly by dollar 139 million or 1.83 percent to dollar 7.48 billion during July-October, 2019, as compared to dollar 7.62 billion received in the corresponding period of last year. As usual, inflows from Saudi Arabia were the highest at dollar 1.74 billion but showed a slight decrease of 1.1 percent from dollar 1.76 billion in July-October, 2018. Remittances from the UAE at dollar 1.54 billion during July-October, 2019, were also lower by 6.6 percent compared to dollar 1.65 billion in the same period of last year while inflows from other Gulf Cooperation Council (GCC) countries dropped by 2.3 percent to dollar 711 million as compared to dollar 727 million in the same period of last year. Decrease was also noted in inflows from Malaysia which clocked in at dollar 542 million, indicating only an uptick of 0.90 percent, which in the same period of last year was a huge 67 percent. On the other hand, remittances from the US grew by 3.8 percent to dollar 1.23 billion, from the UK by 0.94 percent to dollar 1.14 billion and from the EU countries by 3.3 percent to dollar 230 million. It may be mentioned here that the decline in home remittances by nearly two percent during July-October, 2019 compared very unfavourably with the jump of 16.8 percent in the same period of last year. The same was the position with remittances from the US and Malaysia which had gone up by 34.8 percent and 67 percent, respectively, during July-October, 2018, as compared to a year earlier. Remittances during the month of October, 2019, were also not very encouraging as these stood at dollar 2.0 billion compared to dollar 2.06 billion a month earlier, showing a decline of 2.88 percent.

Although total remittances at dollar 7.48 billion during the first four months of the current fiscal still constituted a major item of foreign exchange receipts on the current account (C/A) balance of the country and the decline during this period was not very significant, the latest trend should be a cause of concern for our policymakers. Obviously, if the declining trend of remittances continues to persist in the remaining part of the year, total reduction in home remittances during FY20 could be nearly dollar 400 million, the fall in C/A deficit would be less pronounced, foreign exchange reserves of the country held by the SBP may come under some pressure and market-driven exchange rate of the rupee may witness some depreciation. Of course, these generalisations could only be true if behaviour of other components of the C/A balance would, more or less, remain unchanged. Anyhow, it is difficult to precisely identify the reasons behind the fall in home remittances but it could be inferred that some of the Middle Eastern countries, particularly Saudi Arabia from where the highest amount of remittances originates, are themselves adopting fiscal consolidation measures and laying off foreign workers, thus affecting adversely both the incomes and the number of expatriates in these countries. The flow of remittances from the US, the UK and other developed countries may have been affected due to the tightening/strict implementation of the anti-money laundering measures and the general apprehension that questions will be asked if large amounts of funds are remitted to Pakistan. A sharp depreciation of exchange rate of the rupee, though inevitable due to a huge deficit in the external sector, may have also induced the expatriate Pakistanis to send lower amounts of foreign exchange to their families back home since a lower amount of foreign exchange could now fetch higher amount of Pak rupees and be enough for their maintenance. Another reason could be the holding back of their foreign exchange in the host countries by Pakistani workers in anticipation of further depreciation of rupee. The reason for sharp deceleration in remittances from Malaysia is also difficult to find. It is, however, more than obvious that since most of the factors impacting the level of home remittances are exogenous in nature, the Pakistani authorities could play only a limited role in enhancing the flow of remittances to the country. At best, they could try to persuade some of the Middle Eastern countries to retain our workers, revamp PRI and induce Pakistani workers to send more money through formal banking channels. Nonetheless, the real panacea for improvement in the foreign sector is the sharp improvement in exports and curtailment in imports. We are happy to note that the present government is fully seized of the matter and trying its best to improve the external sector position by implementing a number of necessary measures which were delayed by the previous government for a long time. As a result, the deteriorating trend in C/A balance has been reversed and there are visible signs of improvement in the external sector of the country.