Drop in remittances

According to the latest data released by the State Bank on 10th July, 2017, overseas Pakistani workers remitted dollar 19.303 billion during July 1-June 30, 2017 compared with dollar 19.917 billion received in 2015-16, depicting a decline of dollar 614 million or 3 percent. The major decline was witnessed in the inflows from the US, the UK and Saudi Arabia. Workers' remittances from the US fell 3.24 percent to dollar 2.444 billion during the last fiscal year as compared to dollar 2.525 billion in FY16 while these decreased to dollar 2.338 billion from the UK in FY17 from dollar 2.580 billion in FY16, showing a sharp decline of 9.36 percent. Remittances from Saudi Arabia also showed a significant fall of 8.35 percent, coming down from dollar 5.968 billion to dollar 5.470 billion during FY17. The more worrying aspect is that remittances have almost showed a consistent decline over the months. During June 2017, workers' remittances aggregated dollar 1.840 billion which were 1.46 percent lower than a month earlier and 11.24 percent lower than in June, 2016. The country-wise details for the month of June, 2017 showed that inflows from Saudi Arabia, the UAE, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to dollar 438.1 million, dollar 414.2 million, dollar 265.4 million, dollar 252.5 million, dollar 232.9 million and dollar 56.9 million, respectively, compared with the inflows of dollar 582.8 million, dollar 434.9 million, dollar 274.1 million, dollar 309.3 million, dollar 232.3 million and dollar 50.3 million, respectively, in June, 2016. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries also stood lower at dollar 179.98 million as against dollar 189.4 million in the corresponding month of last year.
It is of course a matter of great concern for the policymakers that home remittances, which had been increasing consistently over the last decade and provided a great support to the balance of payments of the country, had declined during FY17. The matter becomes all the more serious when there are no prospects of the reversal of this trend anytime soon. Over 60 percent of the country's total remittances originate from the Middle Eastern countries which are themselves adopting fiscal consolidation measures and laying off labourers, thus affecting adversely both the incomes and demand of workers in those countries. Remittances from Saudi Arabia have been particularly influenced by the tightening of labour market policies and discouraging hiring of foreign workers in order to increase the employment rate of their own nationals. The flow of remittances from the US, the UK and other countries may have decreased due to the tightening/strict implementation of the anti-money laundering laws and the general apprehension that questions will be asked if large amounts of monies are sent back to Pakistan. Anyhow, the declining trend in home remittances is a very risky development, especially when other components of the balance of payments are also showing deteriorating trends. The revised current account deficit for July-May, 2017 was dollar 10.6 billion or more than double the gap recorded in the first eleven months of the preceding fiscal year. It is not difficult to visualise that in a situation like this, the C/A deficit of the country would continue to widen, foreign exchange reserves of the country may decline and exchange rate of the rupee may come under further pressure. Pak rupee witnessed a 3.1 percent plunge recently but the government managed to contain the rupee's slide to 2 percent. The government may not be able to manage the drop in the rupee rate next time so successfully if the elements of the current account continue to show a deteriorating trend in future. However, it may be added that the government could only play a limited role in arresting the deteriorating trend in home remittances since most of the factors impacting the level of home remittances are exogenous in nature. The government, however, could try to persuade some of the Middle Eastern countries to retain our workers, revamp the Pakistan Remittance Initiative and equalize the inter-bank rate of the rupee with the open market rate with a view to encouraging the expatriates to send money through formal banking channels but the overall trends in remittances will be dictated by foreign forces. As such, the real panacea for the improvement in the foreign sector is the sharp improvement in exports and containment of imports. The government has announced an export incentive package and imposed a regulatory duty on certain categories of imports but these measures are not going to be enough and cannot fully compensate for the shortfall in remittances. In fact, the C/A woes could worsen despite these measures.