At the launch of his book titled "Globalization, governance and growth", Dean and Director of Institute of Business Administration (IBA) highlighted that out of the four pillars of globalization - trade, capital, technology, and migration and remittances - Pakistan is only benefiting from remittances. Well, it looks like this benefit too has just started to wane in the wake of historically low crude oil price.
The share of remittances from overseas Pakistanis residing in Saudi Arabia, UAE and other GCC countries (and oil rich lands) is between 60-65 percent, and thus is significantly susceptible to oil price shocks in at least medium to long run. As a first indication of some sort of slowdown, the latest
figures for remittances released by the central bank show that the workers remitted $11.2 billion in 7MFY16 (July to January), displaying a growth of around 7.5 percent year-on-year - a growth rate that is even less than what was achieved in 7MFY06 (7.6%). The average growth rate for the same seven-month period over the last 10 year is 17.5 percent.
Low oil prices are gradually generating strong economic headwinds for these oil rich countries, especially Saudi Arabia. And Bloomberg has pointed out that the low oil prices are looming threat for consumer - focused companies, and property developers.
Thus it wouldn't be wrong to say that there is a correlation between remittance inflows and oil prices for Pakistan. While the decline in these foreign inflows might not be sharp and immediate, extended low oil prices will likely have influential consequences for the countrys external account and the currency. Even IMF's ninth review highlights the fact that while the current account deficit of the country has been supported by strong remittance growth, the benefit of the low oil prices will be offset by weak export performance and a more moderate growth in remittances in FY16 owing to a weakening outlook for non-oil growth in the GCC countries - the main source of remittance flows in the country.
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