Remittances for the first quarter FY18 stood at $4.79 billion, up barely 1 percent over last year, dashing hopes of those who were upbeat after the 12 percent growth seen in the two months ending August 2017. But anyone following this space mustn’t have been taken in for a surprise.
When remittance grew 12 percent in 2MFY18, Tariq Bajwa, SBP governor, made it a basis for optimism that he sold to a gathering organized by Pakistan Business Council. Back then, this column argued that Bajwa’s optimism on remittance was misplaced (See BR Research’s ‘Optimism for sale’ published September 19, 2017).
Bajwa’s optimism was misplaced because the growth in first two months was essentially due to what is a well established seasonal Eid-effect. “Anyone following seasonal trends in remittances lows knows well that remittance inflow usually drops in the Gregorian month immediately following the month in which Eid-ul-Azha falls. If those historical trends still hold truth – and as such there is no reason to believe otherwise at the moment - then a drop in the remittances in September appears inevitable,” so wrote this column on September 13, 2017 (See Reading remittance spike)
And SBP’s latest data release has proven just that. On year-on-year basis September 2017 saw a drop of 20 percent whereas on month-on-month basis the drop was 34 percent. Stakeholders would like to note that the inflow in September 2017 is actually the lowest since February 2014.
Does this mean that remittance growth has fallen dead in its tracks? Not necessarily. Why so? Well there are external pressures, notably from the Middle East, and especially from Saudi Arabia. But at the same time, we do know the Pakistan Remittance Initiative is taking a host of measures to reignite remittance growth (For details of those measures, see BR Research’s interview with the PRI in Brief Recording section, August 21, 2017).
Whether the PRI will be able to meet the FY18 remittance target of $20.7 billion? That’s a question which can be better answered in the second half, because, as we argued in September, “the real test of remittance flows will begin October onward”. If this drop is arrested over the next 2-3 months then we know that PRI’s has got a handle on it. But if the drop continues ala September-2017, then PRI forex reserves and God bless Pakistan.
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