The Gulf Cooperation Council (GCC) countries have positioned themselves as the highest remitters in the world, collectively beating the United States, the traditional top remitter. The GCC and the wider Middle East, is a vital and rising economic hub bringing people together from across Europe, Africa and Asia. International migrants working and living across the region represent a large part of the population. In the UAE, international migrants account for 88 percent of the population, followed by Kuwait at 72 percent, Bahrain at 51 percent, Oman at 41 percent. The large expatriate workforce in the region means that there is a strong need for them to send money to their families and loved ones back home. After the US, Saudi Arabia, UAE and Kuwait were in the top 10 remittance sending countries globally in 2018, according to the World Bank.
The four-month number for workers remittances inflows are in, and the situation does not look very good so far. By the end of 1QFY20, remittances flows had slipped by 1.4 percent year-on-year; October has added to the blues when the flows dropped by 2.9 percent, taking the 4-month drop to nearly 2 percent. The reasons behind this fall appear to macroeconomics of the oil-producing region and perhaps of Pakistan’s that have offset the impact of efforts being taken to reduce the cost of remittances while increasing the number of tie-ups with banks and agencies in the origin countries.
Since FY19, the government including those led by the Pakistan Remittance Initiative has been taking a number of measures to incentivize overseas Pakistanis to send remittances through formal channels. The list includes bank-led marketing campaigns in labor camps, exemption of Withholding Tax (WHT) on cash withdrawals from PKR accounts that are solely fed by foreign remittances, and the launch of innovative technological platforms.
These efforts, however, can only do so much, when regional economies aren’t doing too well. For instance, the fall in remittances from Saudi Arabia can be reasoned to the slowdown in the kingdom’s economy. The International Monetary Fund (IMF) expects Saudi Arabia’s economy to grow by a meagre 0.2 percent this year, down from an earlier estimate of 1.9 percent, mainly because of oil output cuts. Oil related blues is also responsible behind the fall in remittance from other GCC countries.
But the fall in remittance from Dubai is not very clear. According to Pakistan’s central bank, remittance from Dubai fell by $98 million in 4MFY20, which equals about 71 percent of the total decline in remittance in this period. Dubai may not be growing as fast as it was earlier in the decade, but it is growing better in FY20 (Dubai’s fiscal year is in fact calendar year). According to S&P Global’s analyses, Dubai’s economy is expected to grow 2.4 percent in 2019, compared to 2 percent in FY18 on the back of increased economic activity associated with Expo 2020.
It is difficult to precisely identify the reasons behind the fall in home remittances but it could be inferred that some of the Middle Eastern countries, particularly Saudi Arabia from where the highest amount of remittances originates, are themselves adopting nationalization and fiscal consolidation measures and laying off foreign workers, thus affecting adversely both the incomes and the number of expatriates in these countries.
Since most of the factors impacting the level of home remittances are exogenous in nature, the Pakistani authorities could play only a limited role in enhancing the flow of remittances to the country. At best, they could try to persuade some of the Middle Eastern countries to retain our workers, revamp PRI and induce Pakistani workers to send more money through formal banking channels. Nonetheless, the real solution for improvement in the foreign sector is the sharp improvement in exports and curtailment in imports.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]