Pakistan received record high monthly remittances this July. Overseas Pakistanis sent home about $1.4 billion during the month, which is a significant 20.4 percent more compared to what they remitted in June this year. The sum is also 16.5 percent, or $200 million, greater than July last year. These staggering remittance inflows will beef up Pakistans forex reserves and improve its current account position.
Notwithstanding the government efforts to formalise the remittance inflow, the monetary summit scaled by expats in July was fueled by the month of Ramazan. Remittance inflows increase during the holy month, which concludes to the festivities of Eid ul Fitr. Expats send in more money to their families, for Eid-related spending on things like apparel, footwear and accessories, Eid presents, Zakat, donations and sometimes home renovation.
Historically, there is a relative up-tick in remittances during the Gregorian month in which Ramazan starts. In the past five years, remittances have recorded impressive month-on-month growth in the month during which Ramazan commenced (see illustration). Remittances have declined in the immediate month after the Ramazan month.
Based on that trend, it will be safe to state that the remittances for August will be lower compared to July. It must be noted that the second highest inflow, $1.36 billion, was recorded in October last year, as Eid ul Azha fell in the tail end of the month. Inflows dipped in November.
The Ramazan factor was also evident in that the July remittance inflows from all major remitting countries recorded decent growth over June.
It is encouraging to see that remittances from major sources also recorded healthy growth compared to July last year. The July remittances from the United Kingdom showed year-on-year growth of 49 percent, Saudi Arabia 17 percent and United States 8 percent. Remittances growth momentum is dependent on rising inflows from these markets, especially Saudi Arabia.
Rizwan Hamdani, Pakistan Country Manager at Xpress Money, a global money transfer company, told BR Research that out of 7 million migrant Pakistanis, over 50 percent are employed across Saudi Arabia, UAE, Bahrain, Kuwait, Oman and Qatar. "Since 2010, rising inflows from the Middle East have displaced North America and European regions from being the largest send markets for Pakistan," he said.
But, he is afraid that the inflows from the Middle East region could be impacted with new employment laws in Saudi Arabia that include visa restrictions and tedious processes for obtaining work permits. "That will likely result in the deportation of 35,000 Pakistanis," he said.
Pakistans policymakers have no lever or tool with which to control the impact Saudi labour laws will likely have on Pakistan-bound remittances. What the government must do is to keep working on formalising the remittance transfer channels, besides exploring ways to productively channel these inflows away from consumption towards investment.
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