State Bank of Pakistan in its recent quarterly report has projected that the country would attract a maximum of $20.5 billion in remittances in FY18. Given $14.6 billion remittance inflows in the first nine months of FY18, the last three months of the fiscal year should at least lure in $5.9 billion, which is around 29-30 percent of the projected total – or $1.96 billion per month on average for the next three months. While this sure looks a little challenging as the monthly average for FY18 so far has been around $1.62 billion, but not undoable. Remittances for FY17 stood at $19.3 billion and the government had initially targeted an increase of 7 percent to $20.7 billion for FY18, which is just a little short of the SBP’s latest forecast.

Let’s look at what factors and market dynamics would drive or restrict growth in home remittances in the coming months and the coming fiscal year. First of all, the economy should brace for a continued slowdown in inflows from Saudi Arabia; from oil prices, to economic problems to labour market trends and localisation of jobs, things are likely to remain subdued for the Pakistani expatriates there. (also see “Saudi remittances blow”, published on March 13, 2018). SBP in its second quarter report has also highlighted a host of direct and indirect measures under KSA’s changes in employment and residency policies, and job nationalisation program to replace expatriate workers with Saudi citizens.

These include the imposition of a monthly tax on the expatriates, their dependents, and private companies hiring expatriates; the introduction of Value Added Tax (VAT) on most wholesale and retail sales, including on food at restaurants; and the removal of driving ban on women. All these are expected to adversely affect the amount the expatriates send back home in the coming months.

An important factor that has positively impacted remittance inflows has been the depreciation of Rupee. Not only the actual currency depreciation, but also the speculation that another round is on the cards in June/July 2018 is also being quoted by the market as a reason for higher inflows. This could make $20.5-20.7 billion mark attainable.

While remittance from KSA is on a decline, the shares of both the US and the UK in remittances to Pakistan have increased. March 2018 numbers show the same trend; remittances from USA and UK during 9MFY18 have been up by 12.03 percent and 22.45 percent, respectively. SBP explains the rise from these two corridors as healthy economic activity in the US, and low unemployment. For UK particularly, it highlights that a sharp depreciation of the US Dollar against the British Pound has inflated the dollar value of the remittances originating from the UK.

A look at other important corridors like the UAE and the GCC show that the inflows have been declining or have remained subdued except for Dubai that accounts for most of the inflows from UAE. UAE has also introduced VAT along with Saudi Arabia; therefore, the decline in inflow from UAE may become more pronounced in the coming months as highlighted by SBP. However, since the GCC countries like Qatar, Bahrain and Oman have announced temporary deferment of VAT, the inflows from GCC can recover. 9MFY18 inflows from Dubai on the other hand, have seen an increase of over 22 percent, year-on-year. One reason for the rising inflows from Dubai amid the prevailing conditions in UAE and the GCC countries mentioned above could be other than the regular remittances like disposing off the real estate and property.

Another factor that will affect remittances going forward is the recently announced tax amnesty scheme. While most of these foreign inflows come from overseas Pakistanis, tax evaders have also used this medium to benefit from unchecked remittance sources and under-invoiced exports later routed into the country. The scheme might slightly reduce inflows as now the FBR will have the right to question the source of remittance above $100,000, though these inflows still remain untaxed. On the other hand, the scheme on the whole can also positively affect the inflows if it is successful in legalising wealth and reducing under invoicing.