Among the many unexpected is the continued as well as robust growth in home remittances to Pakistan. The country might be on track to receive record remittance in FY21; Moody has acknowledged that the growth in Pakistan’s remittances is contrary to the World Bank's forecast of a sharp decline in global remittances as well as its own expectation that the pandemic would keep remittances flat.
State Bank data for February 2021 shows that remittances remained above $2 billion threshold for the nineth consecutive month and increased by 24 percent year-on-year, though remaining flat month-on-month. Overall, remittances in 8MFY21 were also up by staggering 24 percent to $18.7 billion. Majority of the remittances come from the Big Four – Saudi Arabia, UAE, US, and UK (70 percent) while another 20 percent is being sourced from other GCC countries and the Europe. Gulf states state alone accounted for around 60 percent of the total inflows.
Many reasons have been linked to the rise in remittances such as jobs losses and the resultant repatriations; or the central bank’s policy measures to encourage conversion to formal and digital channels; or the exchange market conditions. But one major factor that has been driving remittance growth in the country has been the pandemic-hit travel restrictions which has made the overseas residents send in more money back home due to reduced travel expenses.
Remittances from UK, Europe, Saudi Arabia, UAE and other GCC countries are higher in 8MFY21 than similar period last two years (8MFY20 & 8MFY19). However, growth varies significantly across corridors: remittance growth from UK, USA, Saudi Arabia and the Europe is significant (57, 47, 19, and 46 percent), while growth from UAE and the other GCC countries has been in single digits (6%) in 8MFY21, which further highlights the fact that higher the travel restrictions and movement, higher the remittance dividend.
The share of remittances in GDP has gone up to10 percent. SBP has revised its annual projections for remittances to $24-25 billion for FY21, while there are also talks in the market – and for good reasons as Ramzan and Eid-ul-Fitr approach – of touching $27-28 billion in FY21 if the robust inflow continues in the remaining 4 months.
The bonanza in remittance will most likely continue till at least the travel restrictions are in place. 2020 hajj restrictions played a major role, which might continue in 2021 given that COVID-19 has still engulfed many countries. Vaccination conditions might be another factor that would drive travel bans and restrictions. While not with the same rigor, Moody has also predicted continued growth of remittances into the country in the coming years.
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