Rise in remittances

A consistently rising trend in home remittances is indeed a source of great satisfaction for the economic policymakers of the country. According to the latest data released by the State Bank, overseas Pakistani workers remitted dollar 13.302 billion from July to January, 2020 compared with dollar 12.774 billion in the corresponding period of last year, showing a growth of 4.13 percent or dollar 528 million. With a 23 percent share in aggregate home remittances, Saudi Arabia continued to be the largest contributor to home remittances. About dollar 3.051 billion of inflows of home remittances were received from Saudi Arabia in the first seven months of FY20 as against dollar 2.97 billion in the same period of last year. Inflows of home remittances from the US and the UK also soared by 11 percent and 5.6 percent to dollar 2.224 billion and dollar 2.052 billion, respectively, during July-January of this fiscal year. Remittances from other GCC countries also increased by 4.32 percent to dollar 1.275 billion in the first seven months of the current fiscal. Remittances from Malaysia, which has lately emerged as another key source of inflows, however, showed a meagre growth of 1.46 percent as compared to a whopping 48.7 percent recorded in the same period of last year. Remittances from this Southeast Asian country had gone up from dollar 908 million to dollar 922 million during the period under review. Remittances from the EU states were also higher by 8.6 percent over dollar 356 million in the corresponding months of last year. Month-on-month basis, the inflow of workers' remittances during January, 2020 amounted to dollar 1.907 billion, which were almost 9 percent less than December, 2019 but higher by 9.34 percent than in January, 2019 when dollar 1.744 billion was received.

A reasonable growth of home remittances during the course of the current fiscal year is of course a very healthy development and has contributed a great deal to the efforts of the government to reduce the current account (C/A) deficit of the country. If the current rate of inflows is maintained during the remaining part of the year, the country could receive about dollar 23 billion from this source which would be nearly equal to the total export receipts of the country. The increase in home remittances has contributed to the stable exchange rate of the rupee, which has actually appreciated in the last few weeks due to subdued demand for foreign exchange in both the inter-bank and the open markets. Such a modest growth in home remittances has also helped in raising foreign exchange reserves to the current levels of over dollar 12 billion held by the SBP and being on unrequited transfer will not raise the foreign debt stock of the country. Another advantage of home remittances is that these serve to reduce income inequality in the country, since most of the labour force working abroad and sending back remittances comes from rural areas and poor households. Besides, the inflow of remittances promotes financial inclusion which is beneficial for the country. Another positive aspect is that the flow of home remittances has not decreased which was largely expected earlier due to the replacement of Pakistani workers by the workers in the host countries and a slowdown in infrastructural development due to budgetary constraints in labour receiving countries.

An increase in home remittances could be attributed to a number of factors. The most potent reason could be the closing of gap between the official and unofficial exchange rate of the rupee and effective competition given by banks to the money changers in terms of speedy transactions. Another factor could be the proximity of filing of Hajj applications in December, which is a period during which expatriates usually send more money back home to help their close relatives to file these applications. Anyhow, while welcoming a steady rise in home remittances, it must be remembered that this source of foreign exchange receipts is not sustainable in the long run due to a variety of reasons and efforts must be made to increase exports to fill the gap in the external sector. The latter source will not only help close the gap in the foreign sector but would also generate a higher level of economic activity in the country, promote employment and reduce the country's dependence on outside sources.