Stable remittances into Pakistan

Studies reveal that the worker’s remittances are considering second largest source of finance in developing countries after foreign direct investment (FDI). The worker’s remittances are positive as well as significant with GDP growth and also playing an active role in Pakistan economy. Impact of financial sector on GDP growth is also positive and significant as trade openness and world growth GDP. Presently, Pakistanis earning their bread and butter abroad have sustained the flow of strong remittances, as they remained over $2 billion, to their families and friends in January, assisting Pakistan strengthen its foreign currency reserves and enhance its capacity to make international payments.

Statistics show that Pakistan has received workers’ remittances value $2.27 billion in January 2021. They are 19 percent higher compared to $1.90 billion in the corresponding month of the previous year. January was the eighth successive month in which the country received remittances of over $2 billion. Cumulatively in the first 7-month (Jul-Jan) period of current fiscal year 2021, inflows increased 24 percent to $16.47 billion as against to $13.27 billion in the corresponding period of previous year. According to the State Bank of Pakistan (SBP), Saudi Arabia, United Arab Emirates (UAE), United Kingdom (UK) and United States (US) remained strong sources of remittances to Pakistan. The historical trends suggest the remittances peak around the fasting month of Ramazan and Eid festivals yearly in the country. The trend of inflows suggests that remittances may total at around $27-28 billion in the full current fiscal year (FY21). It is also said that remittances are predicted to remain steady ahead of the religious and festive months of Ramazan, Eidul Fitr and Eidul Azha (during Apr-Jul this year).

Furthermore, State Bank has revised up its projection for receipts at around $24-25 billion for FY21 in January from $23-24 billion earlier. SBP also said the remittances sustained uptrend because of the Government of Pakistan and its own attempts to attract inflows by official channels like banks instead of illegal channels like hawala/hundi operators. It is also said that the contribution of remittances in economic activities has slowly increased to almost 10 percent of GDP (gross domestic product). The money the overseas Pakistanis sent to their family and friends is mostly invested in real estate sector and housing construction. Besides, it is spent on education, health and food.

Statistics also show that the viewpoint for the external sector has enhanced over the past couple of months. The current account deficit is now projected to be in the range of 0.5-1.5 percent of GDP. The revision is mostly because of an upward adjustment in workers’ remittances, which are now predicted to be in range of $24-25 billion.

It is also important to note here that worldwide remittances experienced a dramatic raise over the years, mainly since 1990 wherein the developing world emerged to be the major beneficiary accounting for 60 percent of the total amount. Due to the sheer volume, and magnitude of the remittances, and pre-eminence of these flows as against to the FDIs, development assistance and in some scenarios the trade related transactions, the development practitioners tended to focus and examine the significance of remittances which are usually regarded as a dependable source for growth, enhanced welfare and poverty alleviation in the developing world. It is also recorded that remittances directly generate a rise in the recipients’ income, smoothening consumption and facilitating investment in human capital, a main source of development. The indirect effects of remittances on poverty are felt by GDP growth, improved fiscal space and access to foreign exchange.

Sources identify that the global credit rating agency Moody’s Investors Service has also projected drop in remittances during January-July 2021. Contrary to its estimate, the inflows have remained strong so far. Pakistanis sent 4.0 percent higher remittances at $553.6 million from Saudi Arabia in January as against to $531.6 million in the corresponding month of previous year. Non-resident Pakistanis dispatched 6.0 percent higher remittances from UAE at $492.5 million in the month under review as against to $463.5 million in the same month of last year. The expatriates sent $303 million from UK, explaining a growth of 50 percent as against to $201.5 million remitted in January 2020. The remittances from USA grew 37 percent to $203.2 million as against to $148.8 million.

Statistics also showed that overseas Pakistanis remitted $271.2 million from other GCC counties as against to $260.6 million. Pakistanis living in EU countries sent $228.8 million as against to $142 million. Diaspora dispatched $221.2 million from other states counting Malaysia, Switzerland, Australia, Canada, Norway, and Japan, in January as against to $159.1 million in January 2020.