The remittance bandwagon is cruising at a comfortable speed. Latest data reported by the State Bank of Pakistan (SBP) show that workers remittances surged by 16.83 percent year-on-year to settle at $1.32 billion for November. However, the 4.5 percent month-on-month dip in November is not surprising, given that it fits in the historical month-on-month pattern (see illustration).
With November's strong results, the remittance account for the Jul-Nov period has swelled to $7.39 billion, headlining a robust year-on-year growth rate of 15.47 percent. With nearly a billion additional dollars into the remittance kitty, Pakistan is looking comfortable to close the fiscal year around $18 billion. (Assuming the same 5MFY15 YoY growth rate of 15.47% in remaining seven months, remittances will yield $18.3 billion for the full year; at 10 percent YoY, a rather tempered rate, $17.8 billion will accrue.)
But wait, aren the tumbling oil prices a concern for future inflows? Both Brent and West Texas Intermediate crude benchmarks are down by over 40 percent from their peaks this year, trading in the low-sixties now. With low demand forecasts and short-term supply glut, it seems that the bottom has not completely fallen off the crude yet.
Mind you, the GCCs oil-rich countries - which rely massively on crude oil exports to balance their budgets and keep their economies going - are the major origins of Pakistan's remittances. Over 62 percent of the Jul-Nov remittances, or $4.6 billion, was received from the GCC region, mainly Saudi Arabia and the United Arab Emirates. The GCC-contribution rate is consistent with the previous years, and is gradually increasing even as the West-origin remittances share is slowly declining.
Some local economists are warning of an impending slowdown in remittance inflows. Whereas some others advise calm, noting that the hefty dollar reserves held by many GCC economies would not hurt their domestic economies, and by extension, remittance proceeds to Pakistan.
Amid this uncertainty, what does the central bank have to say? The SBP released its annual report this week but sadly, there is not much in there that could tell what the bank is thinking, beyond conceding that the main forex earning or "critical source of comfort" is not originating from textiles, but from remittances, which provided an extra $1.9 billion in FY14. One would have liked some oil-price/remittance sensitivity analysis from SBP. In the current context, the criticality of remittance demands that analysis; doesn't it?
Nonetheless the central bank is expecting FY15 remittances to be in the band of $16.5-17.5 billion. It is, however, targeting $16.7 billion for the full year. That yields a pretty modest year-end growth rate, 5.7 percent, for inflows that have consistently grown in double-digits so far this fiscal. Is that a tempered target or is the bank just being habitually cautious? We don't know yet.
But here is a source of comfort. Even if a slowdown is in sight, the central bank has tried to ward that off before by focusing on the "channel"; that is, pushing ahead hard for official remittance inflows to counter any shortfall. Recall that during the previous GCC slowdown triggered by the global financial crisis (2008-10), the Pakistan Remittance Initiative was formed and that led to growing channel formalization.
That is why, during that period and after, inflows from the GCC region did not decline; they rather grew, and continue to grow. Maybe this time, too, if the slowdown is indeed looming, central bank will again push the accelerator for more official inflows.