Pakistan received workers’ remittances worth $19.62 billion in FY18 and $21.74 billion in FY19. They grew to a record high of $23.10 billion in FY20 with an increase of 7.8% during the March-June 2020 pandemic period compared with the corresponding period of 2019. The significant increase in remittances during June 2020 could be attributed to a number of factors. Since many of the countries eased lockdown in June, overseas Pakistanis were able to transfer accumulative funds, which they were unable to send earlier. Further, it is also believed that they sent remittances to support extended families and friends due to COVID-19.
Pakistan’s Balance of Payment (BoP) position is set to improve, on the back of reduction in the trade deficit and remittance inflows. The share of remittances stands at 8% in the gross domestic product (GDP). They are a very rich source of the country’s foreign income. They were even higher than the cumulative export earnings of $21.39 billion in FY20. They are also an important and stable source of income for families back home and helped strengthen external financing — alongside foreign direct investment and tourism receipts — in many developing economies. They boost general consumption as well as investment and help sustain government debt by contributing to the foreign currency revenue base.
Despite all this, Pakistan is seeing a negative impact on remittances from the Middle East, United States and Europe in FY2020 as most Pakistanis lost jobs and faced cuts in wages, especially in the Gulf countries, while some laborers have returned to the country. Any fall in remittances would impact the country’s foreign currency reserves and increase pressure on the rupee against the US dollar and other major currencies. Secondly, crude oil prices hover above $40 per barrel in the world market compared to $60-70 in January and February this year. One-fourth of total imports of Pakistan comprises oil, gas and coal. The comparatively low oil prices will offset the impact of any fall in remittances. Even though about half of the remittances sent to Pakistan are from oil-producing regions like Saudi Arabia, UAE, Oman, and Qatar, low oil prices may only have a limited impact on Pakistan’s remittance inflows.
The government has chalked out a comprehensive plan to boost flow of foreign remittances in the country by incentivizing the Pakistani expatriates for using legal channels to send money back home, the recent one being increasing profit margins of international and domestic commercial banks and currency dealers on bringing workers’ remittances through legal channels apparently to mitigate the risk of a striking drop in the foreign currency inflows and to better manage foreign exchange reserves in response to the coronavirus pandemic. Some of the incentives announced earlier are as under:
Last year, the central bank has launched an online service, called M-Wallet Scheme, to facilitate instant receipt of remittances via mobile phones in the country. Moreover, the State Bank of Pakistan (SBP) has allowed authorized dealers (banks) to implement business-to-consumer (B2C) and consumer-to-business (C2B) transactions through foreign correspondent entities under either existing or new home remittance agency arrangements. An individual, in B2C transactions, is allowed to receive up to $1,500 per month for providing freelance and information system services. Service providers other than that of computer and information services are also allowed to receive up to $1,500 per individual per month. Individual pensioners can now also receive up to Rs250,000 per month in remittances.
Meanwhile, in C2B transactions, overseas Pakistanis can directly pay utility bills, fee of the Higher Education Commission-accredited institutions, insurance premium and charges incurred at superstores and on credit cards. Overseas Pakistanis are also allowed to remit funds to purchase residential and commercial houses, plots, flats and buildings from reputed real estate builders/developers and housing societies. However, remittances cannot be sent for equity participation in an enterprise. It also allowed the continuation of the new scheme of incentives launched in 2018-19 for banks and exchange companies during the ongoing calendar year from January 2020. As per this scheme, financial institutions would be incentivized at the rate of 50-paisa per US dollar on 5% growth, 75-paisa per dollar on 10% growth and Rs. 1 per dollar on 15% growth. The amount of remittances transferred into bank accounts will be exempted from withholding tax with effect from July 1. Also, a “National Remittance Loyalty Program” will be launched from 1st September with collaboration of major commercial banks and government agencies through, which various incentives will be given to remitters through mobile apps and cards.
[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]