With full year remittance numbers out, Finance Minister Ishaq Dar must be savoring a moment of forex comfort. He may also take some solace in the fact that the sharp rupee appreciation in the third quarter and ensuing stability hasn’t had a negative impact on remitting propensity so far.
According to the central bank, rupee appreciation is expected to have a mixed impact on remittances. “A positive effect may come from overseas Pakistanis who would compensate for the appreciation by sending more foreign exchange into the country (for immediate consumption), whereas a negative effect may come from those who would wait for the PKR to depreciate to realize more (say, for investment),” SBP said in its third quarter report. However, the SBP maintains that it is still too early to give a definitive assessment of the impact of the rupee appreciation on remittances.
Be that as it may, the story of remittance inflows recently has been remarkable. Overall, the $15.83 billion inflows are a record high for Pakistan. The 13.72 percent year-on-year growth is also impressive, more than double the year before. The $1.91 billion extra inflows are due to nine months of solid, double-digit year-on-year growth in FY14, leading to an average monthly inflow of $1.3 billion.
There is some food for thought on this recent merry-go-round in the SBP’s third quarterly report. The central bank attributes this strong growth to a variety of reasons, including the increasing Pakistani migrant stock overseas, global and local efforts for AML-compliance and hundi crackdown, rising interest from financial institutions (small banks, Islamic banks, and microfinance institutions), and direct payment service by international money transfer operators. Besides, the government rebate on transaction fee to commercial banks is also incentivising the market.
The June inflows are especially staggering. Pakistan received $1.49 billion in remittances last month, showing the year-best 29 percent year-on-year increase. That’s the highest-ever monthly inflow. It comes right after and four percent more than the previous record of $1.43 billion seen a month earlier in May.
Clearly, the momentum is there. Encouragingly, all the significant remittance origins-–Saudi Arabia, UAE, US, UK and other GCC countries-–have shown double-digit growth over previous year. About 33 percent of the incremental inflows of $1.91 billion in FY14 have come from Saudi Arabia, 18 percent from Dubai, 15 percent from the US and 12 percent from UK.
The SBP report, however, raises a red flag when it mentions that inflows from Saudi Arabia have been the highest-–growing 15 percent to reach $4.7 billion in FY14-–even though the number of Pakistani workers going there declined by 41 percent in Jul-Feb period.
On one hand, the more than usual rise in remittances from Saudi Arabia could be the result of “regularization and documentation of Pakistanis as per the new labour rules” which led to more usage of formal channels inflows. On the other, “higher remittances may also reflect money sent back by thousands of Pakistanis who have been deported, or are in the process of deportation.”
However, since there is no data on “returning” workers, it is hard to understand the situation right now.
In any case, situation may get clear this fiscal year, as to the impact of Saudi labour market turmoil for blue collar workers.
In the immediate future, expect the remittance momentum to continue due to the “Ramazan factor”. As highlighted in this column last year, remittance inflows in the recent past have recorded impressive month-on-month change in the Gregorian month in which Ramazan commenced.
So, there is a strong chance that July remittances will surge past the $1.5 billion per month threshold, owing to Ramazan-related spending and Eid-related conspicuous spending.
Comments
Comments are closed.