Home remittances

The amount of foreign exchange now received through home remittances is nearly as much as total earnings from exports of the country. According to the latest data released by the State Bank of Pakistan (SBP), overseas Pakistani workers remitted dollar 11.40 billion from July to December of FY20 compared to dollar 11.03 billion in the corresponding period of last year, showing a decent growth of dollar 365 million or 3.31 percent. Country-wise, the highest remittances, as usual, came from Saudi Arabia touching some dollar 2.62 billion over dollar 2.57 billion a year earlier, inching up by 1.97 percent during the period. The United Arab Emirates (UAE) came in second with dollar 2.35 billion in inflows, showing a less than modest growth of 0.04 percent over the amount received during the same period of last year. Remittances from the United States jumped by 9.08 percent, rising from dollar 1.73 billion during July-December, 2019 to dollar 1.89 billion during the first half of FY20. The UK also posted a healthy increase of 6.4 percent as inflows from there rose to dollar 1.75 billion from dollar 1.65 billion in the same half of last year. Though remittances failed to register much growth from Malaysia, it has lately become a significant contributor to home remittances which reached dollar 798 million during July-December, 2019. Inflows from the European Union also posted an appreciable increase of 8.4 percent, reaching dollar 339.24 million during 1HFY20 from dollar 312.88 million in the corresponding period of last year. The increase in the latest month of December, 2019 was even more pronounced. The inflows of remittances during December amounted to dollar 2.10 billion which were 15.25 percent higher than dollar 1.82 billion received during November, 2019 and almost 20 percent higher than dollar 1.75 billion received in the same month a year earlier. It is obvious that if such a healthy trend persists in the remaining part of FY20, total amount of remittances could reach the mark of dollar 23 billion.

A continuous increase in home remittances is indeed a very positive development for the country and has greatly helped in overcoming acute problems in the external sector of the economy. Their most significant contribution is a vast improvement in the current account (C/A) balance of the country and the maintenance of foreign exchange reserves held by SBP at a reasonable level. With C/A deficit shrinking rapidly due partly to a rise in workers' remittances, foreign exchange reserves of the country have soared to dollar 11.5 billion last week which was the highest level in the last 30 months. Such a healthy growth in foreign exchange reserves held by SBP would give the needed confidence to foreign investors in the solvency of the country. It could also be easily seen that without such a healthy development, C/A deficit would have been higher, exchange rate value of the rupee could have eroded further, exacerbating inflationary pressures in the economy, and there would have been question marks about the solvency of the country. Fortunately, the rise in remittances has also been accompanied by a sharp fall in trade deficit due to a substantial compression in imports and a modest expansion in exports. It needs to be mentioned here that such a sharp improvement in the external sector accounts of the country would not have been possible without some bold decisions to reverse the deteriorating situation. The present government, sensing a highly risky situation in the external sector, opted to devalue the rupee considerably, negotiated a stabilisation programme with the IMF envisaging a bold reform process and restricted imports into the country by some harsh tariff measures.

It is difficult to pin down all the reasons for a healthy growth in workers' remittances. It could be due to stability in oil prices in the international market which has encouraged the Middle Eastern countries to invest more in the infrastructural development of their countries. Diplomatic efforts have also been made to persuade various foreign governments not to lay off our workers as a result of which the number of Pakistani workers going abroad is reported to have increased. Higher family needs back home due to increasing inflation, strict monitoring of exchange companies by the SBP and tightening of monetary policy in Pakistan may have also contributed to the growth in remittances. We earnestly hope that the present government will continue to monitor the situation closely with a view to ensuring a rising trend in home remittances in the years to come.