International experts revealed that falling remittances may affect sovereign ratings by external finances and economic growth. Remittances are a key source of foreign currency receipts. As a consequence, lower remittances would most likely widen current account deficits, contributing to higher external financing needs. Unluckily Covid-19 pandemic is crippling the economies of rich and poor countries alike. Yet for many low-income and fragile states, the economic shock will be magnified through the loss of remittances — money sent home by migrant and guest workers employed in foreign countries. Remittances should enhance beginning in 2021, but the recovery is probable to be gradual. International experts have warned for five Asian nations counting whose credit ratings are predicted to be impacted because of a potential fall in foreign currency as remittances decline and offset gains from lower oil prices in the second half of 2020. Falling remittances in economies that are dependent on them may affect sovereign ratings by pressures on external finances and economic growth, adding that the receipt of record high remittances through Pakistan consecutively in June and July was because of temporary factors. Furthermore, the global credit rating agency revealed that high debt-to-GDP ratios in Pakistan constrain the ability to respond to possible rising social-spending needs. The receipts are set to drop because of a squeeze on income and loss of jobs through the expatriates abroad in the wake of Covid-19 pandemic and a global oil pricing crisis, mainly in the Gulf countries from where Pakistan attracts greater than half of the total remittances every month. It estimated by statistics, on an average, 12 percent drop in yearly remittances for the five nations, counting Pakistan, Bangladesh, Sri Lanka, India and Philippines compared to 20 percent anticipated through Asian Development Bank (ADB) and World Bank.
Pakistan is among the nations that rely on remittances, as the inflows stand at 7.9 percent of GDP. The potential drop in the flows would keep the country fiscal and current account deficits on the higher side and may impact its collection of revenue in taxes as well. According to the ADB, about 4 percent of households in Pakistan receive remittance income. The Gulf region is a significant source of remittance flows, mainly for countries in South Asia. The region accounts for roughly half of remittance inflows in Bangladesh (58%), Pakistan (54%), Sri Lanka (45%) and India (51%). Pakistan has reduced its current account deficit, from a high of 6.1 percent of GDP in the fiscal year ending June 2018 (FY18) to 1.1 percent in FY20. It has also modestly rebuilt foreign-exchange reserves, in large part from a shift to a more market-determined exchange rate. While Pakistan experienced growth, Bangladesh faced a slight fall and both the Philippines and Sri Lanka saw sharp contractions.
Statistics showed that during the first month of ongoing fiscal year Pakistan attained received record high remittances of $2.768 billion, following the record $23 billion remittances during the outgoing financial year. The experts urged that this in the country is the highest-ever level of remittances in a single month. Remittances from overseas Pakistanis stood $2,768 million in July 2020, highest ever amount in one month in the history of Pakistan. This is 12.2 percent raise over June 2020 and 36.5 percent raise over July 2019. In terms of growth, statistics also showed that workers’ remittances grew by 36.5 percent over July 2019 yearly basis and 12.2 percent over June 2020 (month-on-month), adding that given the Covid-19 impact on the global economy, this increase was encouraging. It is said that though the export of manpower is almost zero after the novel Covid-19 hit Pakistan in March 2020, the inflows of remittances have grown.
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Furthermore, Pakistanis sent more money to their families and other relatives to assist them tide over Covid-19 problems and support those members who lost jobs and businesses. Moreover, the country received $821 million from Saudi Arabia in July 2020, as against to $470 million during the same month previous year, a rise of 74.5 percent. Pakistan has been receiving the highest remittances from Saudi Arabia for the past various years as about 1.0 million Pakistanis are employed there. The second biggest remittances of $538 million came from the UAE, showing a growth of 26 percent as against to the same month previous year. It is also revealed through statistics that a significant growth of 31.7 percent was noted from UK as Pakistanis living there sent $394 million remittances in July. However, remittances from US dropped by 22 percent to $250.6 million. The growth in July last year was over 13 percent. The Inflows from the Gulf countries explained 50 percent growth in remittances as Pakistan received $297 million in July, as against to $198 million during the same month last year. The inflows from the EU countries were surprisingly very high as these jumped by 292 percent in July 2020, as against to the same month last year. Pakistan received $227.5 million from EU countries as against just $58 million in July previous year. However, the inflows from Malaysia took a nosedive as it declined to $22 million in July, as against to $160 million during the same month last year, a decline of 86 percent.