EDITORIAL: Remittances rose to a historical high of 23.1 billion dollars in fiscal year 2019-20 with the June 2020 data revealing a record raise in comparison to the comparable period of a year before: 2.47 billion dollars against 1.64 billion dollars. Three possible reasons may account for the rise in remittances. First, the SBP report claims that "supportive government policies in terms of extension of reimbursement of telegraphic transfer (free send remittance scheme) to small remitters by reducing the threshold from 200 to 100 dollars as well as broadening the scope of incentive marketing scheme for financial institutions increased remittances....on-boarding of a large number of technology based money transfer companies by SBP and PRI also helped absorb the shock of lockdowns. Financial institutions were motivated to use effective marketing campaigns with particular focus on digital channels for sending and receiving remittances to promote the use of legal channels." While not discounting the positive impact of the pre-Covid-19 measures on remittance inflows yet they cannot be cited as a major factor in the rise in remittances by 7.8 percent during March-June 2020, the post-Covid-19 period.
With specific reference to a rise in inflows from the UAE in particular - from 4.6 to 4.7 billion dollars - the quarterly SBP report from 2018 notes that "Pakistani government started disbursing the rebate on remittance transactions more regularly, which may have incentivized the remittance transmitting entities in the UAE to opt for the legal channel.....foreign exchange inflows from Dubai may be attracting intense scrutiny of AML monitoring institutions, as the state has graduated to a major international financial hub in recent years. This could have discouraged the hundi/hawala activity between Dubai and Pakistan." The hundi/hawala system suffered a major hit post Covid-19 because of the lack of mobility of currency smugglers as a consequence of the lockdown and therefore while one would hope that last year's figures reflect a new trend yet it is perhaps too early to conclude that the illegal transfer payments system is defeated for times to come.
Secondly, the pandemic-specific measures were all the more successful in convincing workers to remit through legal channels because the lockdown in the host country included extremely limited working hours in banks with a cap on the number of services on offer hence with the easing of the lockdown Pakistani workers were enabled to begin transferring funds that they were unable to do earlier.
And finally, remittance inflows from Saudi Arabia rose from 5 billion to 5.43 billion dollars and in the rest of Gulf Cooperation Countries (GCC) from 2.1 to 2.2 billion dollars. It must be borne in mind that in June 2020 the government of Pakistan began repatriating workers who were made redundant in Saudi Arabia and other Gulf countries as a consequence of Covid-19. This implied not only payment of their salary for the last month worked but also the severance package agreed in the contract. This may possibly be the reason for the rise in remittances in June 2020 as a one-off though one would sincerely hope again that this is not the case.
To conclude, remittances and exports are a desired form of foreign exchange earnings for a country and the government needs to focus on both instead of relying on import contraction to meet its balance of payment challenges. Exports too have risen in recent months though again one would hope that the rise indicates a trend rather than a Covid-19 outcome that would eventually fizzle out as Covid-19 is dealt with.
Copyright Business Recorder, 2020
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