One keeps hearing about oil price-led remittance slowdown from Saudi Arabia, at conferences and in boardrooms; but the reality is different. It is true that remittance inflow from Saudi Arabia grew only 7.7 percent in the eight months ending February 2016, as against a growth of nearly 19 percent in the same period last year. It is also true that Gulf countries constitute more than 60 percent of total worker remittances to Pakistan, rely heavily on oil revenues to finance infrastructure spending; and that Saudi Arabia is particularly vulnerable given that its forex reserves have been depleted by almost $80 billion between since January 2015 to January 2016, due to oil price decline.

But these are not the reasons why remittance growth has slumped in the fiscal year to date. According to central bank data, the main reason appears to be the remittance drop from the US and the UK. In fact, remittance growth from Saudi Arabia has consistently outperformed growth from all other major countries/regions except the UAE.

What else may then explain the remittance drop from Saudi Arabia? For one, there is a sheer saturation affect that has become visible across most major remittance corridors.

In the case of Saudi Arabia, that affect is likely to be even more, given the sharp growth in inflows from that country in the last decade. In FY05, the share of remittance from Saudi Arabia as percentage of total remittance was 15 percent.

Today, it is about 30.12 percent, with growth being very sticky since FY13.

The other reason behind slowdown, as the central bank highlighted last month, may be the government's decision to cut effective rebate on remittances with effect from July 1, 2015. Recall that last year, a central bank circular had announced a cut in government rebate from 25 Saudi riyals to 20 riyals per transaction. Moreover, the minimum amount of remittance to qualify for reimbursement of telegraphic transfer (TT) charges had been increased from equivalent of $100 to $200.

This rebate given by the government essentially works as incentive to formalise remittances by lowering the cost of sending remittances through formal channels. Banks are also allowed to share this rebate with partner exchange companies and/or money transfer organizations, to encourage them mobilize more customers.

A slash in rebate may be hurting formal remittance inflows; and the banking community or the central bank would do well to do a study on the same.

Anyway, after a decade of sharp growth in remittances, it was but natural for the pace to slowdown. While the PRI continues to roll out new tie ups with banks and financial institutions in the West, what is now needed is a combination of two things: new and improved labour exports; and remittance bonds.

This column had been raising its voice about the need for skilled labour exports for at least the last two years. The gradual saturation, which is very visible today, was very much expected two years ago. And so it would have been prudent had the government planned ahead to try keep the remittance growth intact.

Second, there is increased competition in UAE labour market, especially from India and Philippines. Recall, that India has lately been wooing UAE even more, to increase its labour exports to the region.
The good thing, however, is that donors operating in Pakistan have now gathered interest in developing skilled labour, and one such programme in the pipeline is a programme for technical and vocational training in Punjab.

The introduction of remittance bonds is also another way to attract more inflows - and that too in dollar terms. Sources have informed BR Research that the PRI has already drafted initial proposals for the same, but that the government doesn't seem to be active on the matter.

With remittances growth facing a saturation point, and GCC remittance remaining susceptible to oil price swings (regardless of whether the latter hasn't yet materialised), prudence demands that government works on both high skilled labour exports, and the remittance bonds.