EDITORIAL: International ratings agency Fitch's warning that a coming squeeze in remittances to some Asian countries including Pakistan could disrupt their foreign currency inflows and even affect their sovereign ratings is already pretty much written on the wall, so the government must begin making necessary arrangements immediately. In a report titled 'APAC (Asia-Pacific) Remittances and the Coronavirus Shocks: Remittances Set to Decline in 2020 Despite Recovery in Recent Months', the agency has estimated an average 12 percent drop in annual remittances for Pakistan, Bangladesh, Sri Lanka, India and the Philippines in the second half of 2020. That the World Bank and Asian Development Bank (ADB) anticipate a 20 percent fall in remittances for these countries over the same time period only confirms the expected downtrend. And it's pretty straight forward to understand. Pakistanis have, just like everybody else, lost jobs in all parts of the world because of the pandemic and the ensuing lockdowns, and it was only a matter of time before they as a group may start sending much less money home. The problem in the Gulf region, where Pakistan traditionally receives more than half its annual remittances from, is made even worse by the international oil price crisis which has obviously added to the number of job losses there.
Our government celebrated the recent sudden surge in remittances quite visibly and loudly recently, and perhaps rightly so. The country did, after all, receive a record $23.10 billion in the previous fiscal year which ended on June 30, 2020 and then went on to fetch $2.77 billion in July and 2.095 billion in August another all-time record. Yet, as impressive as these numbers are, Fitch seems to brush them aside as 'due to temporary factors'. The surge happened, according to the agency, because a very large number of migrant workers were packing up and returning and bringing their life-savings with them and also because people were just forced to use formal money transfer channels since the pandemic had shut everything else down. And it doesn't help the country's current account that exports too, after surprisingly perking up in July, have dropped because of disruptions caused by the rains. So, while it is very understandable why the government chose to draw political mileage from the improved inflows, perhaps it should now begin working on ways to preempt the looming crisis.
The main problem is that home remittances are one of those factors where the government except for facilitating and encouraging use of formal channels can do very little. It cannot, no matter how much it tries, influence employment trends in the US, Europe and the Middle East. But now that different avenues of its earnings are being compromised it needs to think out of the box and come up with ways of offsetting the predicted slump in foreign exchange inflows. The government, no doubt, is endeavouring to resurrect the economy post lockdown, but in order to get back to business as usual, the rest of the world also needs to open up properly so others can buy our goods like before. That, of course, is not possible at least as long as there are genuine fears of a strong second wave of the coronavirus in many countries at the moment. Since that and the rains have trimmed export revenue and remittances are also predicted to fall, the government could find itself in a very tight fiscal corner very quickly.
It must therefore speed up negotiations for getting the International Monetary Fund (IMF) programme restarted after the pause that was needed to dole out relief packages to meet the emergency. And considering the special circumstances and the obvious strain on resources, the government must ask the Fund to be accommodating and make some special concessions for this year. The last thing the country needs right now, after fighting off the worst effects of the coronavirus so successfully and also getting the economy up and running once again, that an exogenous shock derails the recovery out of nowhere. The government simply cannot afford to be caught unawares. Since the IMF has observed all that the government has done to keep the economy moving despite the lockdown very closely, surely it must appreciate the need to give the country some space on the matter of revenue for this fiscal year. Fitch and the others expect remittances to pick up early next year, though at a slow pace, so any relief that Pakistan would need would be for a short period of time. Hopefully, an agreement will be reached that would not allow other countries' problems to hold our recovery hostage.
Copyright Business Recorder, 2020
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