EDITORIAL: Home remittances or workers’ remittances have really done well in the outgoing financial year in sharp contrast to projections by multilateral and donor agencies. Home remittances grew by 27 percent in FY21 to $29.3 billion. This is the highest yearly growth since FY04. This high growth is attributed primarily to the significantly reduced travel due to the Covid-19 pandemic and the shift in remittances from informal to formal banking channels. A similar growth is also visible in Bangladesh where home remittances went up by 36 percent in FY21 to $24.8 billion.
Finance Minister Shaukat Tarin argues that it is the credibility of the Prime Minister that is encouraging people send higher amounts home while some others give credit to the central bank’s efforts for this historic increase. Certainly, a robust growth in home remittances was the prime reason for external account stability last year that has paved way for a growth momentum. The million-dollar question, however is: how sustainable will be the trend in the event of trade reopening in the vaccinated world?
There is no way a similar growth can be achieved in this year unless the pandemic rebounds in a major way. The real challenge is to ensure that the $2.5-2.7 billion monthly flows continue. Since the number of workers going abroad is likely to remain subdued and there might be a case of a few coming back home from the Middle East after rightsizing, it is imperative to retain the shift from informal to formal channels. It is precisely why the SBP is continuing to ease processes and lowering transaction costs of sending remittances through formal channels.
In 2009, the then government with Shaukat Tarin as its finance minister, had started the Pakistan Remittances Initiative (PRI) in which transfer of remittances through formal channels was incentivized through fiscal and other support. This paid rich dividends in the shape of double-digit growth in remittances for four years before the money sent by the Pakistanis abroad came down to a single digit as the next government withdrew some of these initiatives. It is about time the government revived such measures. It would be, therefore, worthwhile to launch a prize scheme along similar lines that the finance minister Tarin is already considering for maximizing revenue generation.
As can be seen from the data the growth in remittances is comparatively lower from the top sources of home remittances namely; Saudi Arabia and the UAE – up by 16 percent and 9 percent, respectively, last year to $6.6 billion and $5.6 billion. On the other hand, growth from West – mainly the US and the UK, is much higher – up 58 percent each to $2.8 billion and $4.1 billion, respectively. That is where the real juice is coming from. A 40 percent increase in remittances from these two countries where the share is less than 25 percent. It could well be a case of people sending money for investment in real estate and helping families here who were financially struggling due to Covid-19. It is, therefore, necessary that this aspect is investigated. The SBP has conducted and found out through a survey of remitters that many new senders are likely to stick around in the formal sector. It is, therefore, imperative to keep time span and cost of sending at their minimal for senders to not revert to informal channels. Apart from these measures, bilateral agreements with countries in the Middle East should be expedited to have more workers from Pakistan going abroad. And more importantly, Pakistan should expand the base of its women workforce overseas as well. That is to be mainly in service industries. It is also important to note that there are low hanging fruits in service industry for men from the lower middle class as well. The bottom line is, the government should make concerted efforts aimed at ensuring the remittances land in the formal sector. It is also required to accelerate its efforts towards sending new workers abroad in order to ensure that the growth momentum persists. Growth in remittances should be outpacing growth in imports to keep balance of payment (BoP) risk in check.
Copyright Business Recorder, 2021
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