Good signs for remittances

The slowdown in home remittances has been flagged as a concern too many times for a country that depends on these inflows greatly, in addition to exports. These concerns have been fuelled by both general conditions like global economic slowdown, oil prices and the seasonal/festive impacts; and more specific ones like the structural or demand/supply changes in Saudi Arabia and the HBL saga.

However, latest numbers from the central bank i.e. remittances for December 2017 at $1.724 billion show that there has been an 8.7 percent year-on-year increase, which is noticeable after three months of year-on-year decline. Slower September, October and November figures have kept 1HFY18 growth figures tepid. 1HFY18 brought in a total of $9.745 billon inflows from the overseas Pakistanis, which are only 2.5 percent higher than 1HFY17.

Overall, the country has seen an increase in remittances from US, UK and EU in the first six months of FY18 while the inflows from the Middle East and the GCC countries continue to show dullness. For December 2017, the key growth markets were also US, UK, EU, while UAE has also seen an improvement.

Unfortunately, Saudi Arabia continues to be a cause for concern. In December 2017, the expats residing in the Kingdom sent back home around $432 million, down 9.2 percent year-on-year. For 1HFY18, remittances from Saudi Arabia totaled $2.53 billion, which was again down by around 7.5 percent.

Nonetheless, there are some good signs for remittances in general and some specific ones, thanks to PRI’s efforts. Like exports, rupee devaluation is taken well by the overseas Pakistanis who send money back home; increase in remittances in December can be attributed partially to the recent fall in rupee value.

SBP has been working aggressively to increase remittances through formal channels. Our channel checks suggest that PRI has been engaging with banks and exchanges and has been visiting different traditional corridors including those in UK, US, UAE and non-traditional ones. Also their efforts to tackle Hawala have been able to bring down the kerb market premium, which was 0.4 percent in December compared to 1-2 percent in the previous four months.

Meanwhile, after SBP’s launch of Asaan Remittance Account to encourage remittance receipts through proper accounts, mobile wallet remittances scheme has also been launched by PRI in Dec to channel remittances through branchless banking channels. While there will be some diversion of over-the-counter cash transactions to m-wallet, industry insiders are optimistic that the convenience, accessibility and transparency will lure in new customers as well, especially from far-flung areas.

For achieving SBP’s target of $20.7 billion in FY18, the 2HFY18 growth needs to be over 11 percent, year-on-year. Given that the first six months of the fiscal year in the last five years have accounted for around 48-49 percent of the total remittances fetched in that year, the target seems attainable.

However, more good news need to come in form of efforts, especially if Saudi Arabia slowdown is to be salvaged. Saudis are progressing with their Vision 2030, which resonates modernisation. And being the largest market for Pakistani workers – majority of whom are unskilled - things are getting tough for the expats. Also, industry experts say that Pakistan’s labour export to Saudi Arabia has fallen by more than 50 percent in 2017—this decline was around 11 percent in 2016.