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COVID-19 and the challenges of foreign remittances and expatriates unemployment

The coronavirus pandemic has rapidly transformed life of millions of people all over the world. For many, COVID-19 carries feelings and challenges of fear, anxiety, economic hardships, isolation, and many other stresses but developing countries are the main hit of the pandemic, not only as a health crisis in the short term but also as a devastating social, economic and political crisis. At present the bigger challenge for the entire world and especially for the developing nations is to keep their economic wheel moving to ensure food security and wellbeing of the society under the barriers of lock downs. Beside various challenges decline in remittances and expatriates unemployment will also harmfully disturb their economic operations and become one of the biggest challenge to overcome. Pakistan is one of the leading country in remittance receiving around the world and our economy is greatly influenced by the foreign capital inflows into the country that eventually stabilizes the economic conditions of families of workers working abroad and the nation as well.

There are about 10 million Pakistanis working in rich nations like Saudi Arabia, USA, UK, Canada, Switzerland etc. Saudi Arabia has the highest rank among the countries where people from Pakistan work. The funds transferred from other countries enter in both formal and informal ways. Remittances have helped the country in reducing the current account deficit and external debt burden. The COVID-19 crisis is feared to bring a decline in remittances to Pakistan. Recession in global market and international travel restrictions due to COVID-19, and the decline in the oil prices have led to a significant decline in remittance flows.

The Gulf area is a significant goal for vagrant laborers and maybe the biggest wellspring of transients’ settlements to South Asian nations including Pakistan. Transient specialists are a huge piece of the GCC economies. 80% of the UAE populace are outside nationals. In Saudi Arabia, around 80 percent of the work power comprises of vagrant laborers. A significant number of these abroad laborers are utilized as low-talented specialists in development, inns and cafés and as residential laborers. For the greater part of these laborers, this is their solitary possibility of work and improving their lives. Simultaneously the beneficiary nations profit by the billions of dollars got as settlements from these nations. The downfall of the oil costs, travel industry and complete or partial lockdowns are the three basic factors through which COVID-19 has impacted the GCC economies. Travel limitations due to the COVID-19 situation have diminished worldwide interest for oil, and the absence of another creation understanding between OPEC and individuals has prompted a flooding of the oil flexibly. Almost oil costs fallen by more than half since the start of the COVID-19 situation. The Gulf nations are mostly depends on their oil incomes and Saudi Arabia will encounter major loses if the infection influences the journey season of Umrah and Hajj. The effects of COVID-19 and the decline in oil costs have strong implications for the Gulf economies and could turn out to be far more detestable. It is normal that most of the laborers from abroad in these nations could lose their job positions due to the noteworthy gouge in the private segment monetary measures which results a large number of these laborers will come back to their origin countries causing joblessness in the their countries and the nation will face the problem of expatriate unemployment along with the local unemployment (either due to COVID-19 and other). Gulf region is the main landing place for migrated workers and obviously our highest source of remittance. 80% of UAE population are foreigners and in Saudi Arabia almost 80% work force comprises of foreign workers perhaps they are low paid unskilled workers working either in construction, hotels and domestic works.

The collapse of the oil prices, tourism and full or partial lockdown are the three main channels through which COVID-19 has affected the Gulf economies. Travel restrictions in the wake of the COVID-19 pandemic crisis have reduced global demand for oil, and the lack of a new production agreement between OPEC+ members has led to a flooding of the oil supply. As a result, oil prices have fallen by over 50% since the beginning of the COVID-19 crisis. The GCC countries are highly dependent on oil revenues and Saudi Arabia will suffer major loses if the virus affects the pilgrimage season. The effects of COVID-19 and the fall in oil prices have had serious consequences for the GCC economies and could become even worse. It is expected that majority of the migrant workers in the GCC countries could lose their jobs due to a significant dent in the private sector economic activities. This means that many of these migrant workers will return to their home country and increase the masses of unemployment in the country. Pakistan currently facing the challenges on two basic sides of remittances:

  1. On transfer and receiving sides of remittances
  2. Income disruptions and financial loses

Due to partial and complete shut downs one of the reason of affected transfer and receiving of remittances is the outreach (domestic & International). Domestic outreach will effect due to the selected functional bank branches and also limited timings and as our most of the foreign workers are not literate the bonding of worker with branch and its location really matters to them. Workers living abroad are not only employed in services and manufacturing sectors but in GCC many of our workers doing blue color jobs and are self-employed and the pandemic will also affect them badly their businesses are in financial losses or experience shut downs which obviously create income disruptions. The positive factor in this pandemic is that the transfer of funds from hawala hundis reduced and state bank of Pakistan activate its digital channels for funds transfer and instruct all banks to avoid complications in compliance to avoid any delay. According to estimates of WB 20-23% remittances of Pakistan reduces in 2020.

According to current statistics, remittances shared more than 6% of Pakistan’s GDP in 2019. Remittances have increased from US$ 19.91 billion in FY18 to US$ 21.84 billion in FY19 (9.67% growth rate) and it was forecasted that Pakistan will receive around US$ 23 billion in FY20 and over US$ 26 billion in FY21 but the hidden COVID-19 outbreak and decline in oil market will impacted badly the flow of remittances to Pakistan. Quarterly data show that remittances falls from US$5,918 million from Q2: Oct-Dec 2019 to US$5,626 million Q3: Jan-Mar 2020, represents a 5% decline in last quarter.

 

Flow of remittances in US ($) million

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Among the Gulf countries, Saudi Arabia and the UAE are the largest source of remittances for Pakistan, and both these countries are under a lockdown. It is assumed that Pakistan will have to disavow the share of remittances to GDP. The uncertainty of COVID-19 leads to a high degree of uncertainty on the world economy. Therefore, the recovery of the remittances flows is highly unpredictable and depends entirely on economic recovery of the net remittances sending countries. Millions of Pakistani workers throughout the world are facing job losses, business closures and lockdowns. Many of them are no longer able to help poorer relatives in Pakistan, and the situation is feared to get worse with time. Remittances is the only source of income for the families of most of the migrant workers, therefore, the loss of the remittances is a serious threat to the well-being of millions of families in Pakistan. For many poor families, the loss of remittances is the loss of an important lifeline in funding and has a direct impact on nutrition, health and education outcomes.

Migrant workers

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Provision of jobs to these migrated unskilled work force is really a big challenge for Pakistan. Cottage industries must be supported by government to engage these workers.

In the first ten months of the FY 2020 Pakistan have $18.8 billion workers remittances and $18.4 billion export remittances indicating workers remittances > exports remittances. Exports remittances are more useful for any economy as it creates employment, industrial development and sustainability in the country. Pakistani labor force working abroad lives in shared places which is to be utilized by them in shifts but lockdowns will force them to stay all in their places at a time which creates many psychological issues. The crisis of COVID-19 will affect the entire world so policies must be taken to overcome the challenges in order to minimize its effects.

Policies in action
  • To overcome the issues of decline in remittances State Bank of Pakistan working hard by activating digital channels.
  • Enforce banks to avoid unnecessary compliance and delay.
  • Announce several promotional schemes to use official channels of remittance transfer.
  • Announce home delivery of remittances through mobile wallets to compete hawala’s.
  • Introduce free air time on every $ transfer via mobile wallet in against of premium offered on exchange rate by hawala hundis to discourage the use of unofficial channels of funds transfer.
  • Reduce interest rates to attract investors.
Policies recommended
  • More decline in interest rate is required in current COVID-19 crisis.
  • Need of value edition pay backs to the residents use official channels of funds transfer on real time basis.
  • Improvement is needed in export refinance schemes.
  • To ensure the effectiveness of special package announced by SBP for SMEs and reduce compliances as many of our SMEs are exporters and earn export remittances for Pakistan.
  • FBR is used to avoid documentations in special credit schemes as FBR already have enough documents to fulfill the needs of schemes.
  • Export bonus schemes must be announced not in form of cash but in the form of vouchers which is to transferable to NTN holders and tradable in stock exchange so that SBP will bear no cost except printing.
  • Through supporting SMEs Government will create jobs that accommodate expatriate unemployed workers.
  • Export finance schemes are also required to announce not only on commodities but also on services to support expatriates so that these workers will start their small businesses which may emerge as exporters in future.
  • In the given situation Government of Pakistan needs to use its diplomatic missions to activate themselves, lobbying with the host countries to treat Pakistani workers generously and minimize the chances of being laid-off as much as possible.
  • It is also recommended that money transfer networks have shut down. Host and home countries are required to treat remittance service providers as essential services and give them a waiver for any limitation on movement and closure of businesses.

The growing COVID-19 crisis threatens developing countries, not only as a health crisis in the short term but also as a devastating social, economic and political crisis. Considering a societal and ethical responsibility consortium of universities (Bahria University Karachi, Institute of Research & Promotion, Riphah Public Policy Institute Islamabad, University of Sialkot, Applied Economics Research Centre & Centre of Peace & Development Studies) and research organizations across Pakistan is constituted so that academicians, scientists, social scientists, experts, practitioners, government representative, private sector (industries) and civil society (following triple helix model) may share their expertise and deliberations to explore the ways and means to address the challenges associated with COVID-19 era and work out viable solutions for the socio-economic revival of economy of Pakistan through their online webinars and send their recommendations to concerned authorities.

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