Remittances inflows have increased significantly in recent years and have become the main financial external inflow in some developing countries, surpassing other inflows that traditionally play an important role in these countries, such as official development assistance and foreign direct investment. Furthermore, Remittances have become significant private financial resources for households in countries of origin of migration although they cannot be considered as a substitute for foreign direct investment (FDI), official development assistance (ODA), debt relief or other public sources of finance development.
According to the World Bank’s latest Migration and Development Brief released on June 13, 2023, remittance flows to low- and middle-income countries (LMICs) are estimated to grow by 1.4 percent to $656 billion in 2023 as economic activity in remittance source countries is set to soften, limiting employment and wage gains for migrants. However, in 2023 the growth of remittances is expected to moderate to 1.4 percent, to a level of $656 billion because of slowing economic growth in major source countries. Slower growth in remittances is expected in all regions, notably in Europe and Central Asia (1 percent) and South Asia (0.3 percent). In Europe and Central Asia, the growth in remittances is slowing down due to a high base effect, lingering weakness in flows to Russia and Ukraine, and the weakening of the ruble against the US dollar. In South Asia, growth in remittances is expected to contract because of worldwide layoffs in the information technology sector, lower oil prices that are expected to fall remittance flows from the Gulf Cooperation Council (GCC) countries, and the continued diversion of remittance flows to informal channels as economic uncertainties worsen in some recipient countries.
The Growth rate of remittances by contrast, is expected to continue to be relatively strong in Latin America and the Caribbean (3.3 percent). Most senders of remittances to this region are based in the United States, where both the employment levels and wages of Hispanic and foreign-born workers have been strong. Growth rates of remittance flows are expected to be 1.7 percent in the Middle East and North Africa, 1 percent in the East Asia and Pacific region, and 1.3 percent in Sub-Saharan Africa.
Besides economic growth and the employment levels of foreign workers, the other two variables that affect remittance flows are oil prices (especially in the Russian Federation and member countries of the Gulf Cooperation Council), and exchange rates of local currencies with respect to the US dollar. When the local currency of a source country (e.g., the ruble) weakens against the US dollar, the value of remittances in US dollar terms falls correspondingly. Such valuation effects are significant in the case of remittance flows to Central Asian countries (where remittances originate in ruble terms) and in the case of North Africa (where remittances originate in terms of euro or pound sterling). In many remittance recipient countries that are facing balance of payments difficulties and the emergence of gaps between the official and the market exchange rate, remittance flows may shift to informal channels, in which case the official data on remittances would underestimate the true size of flows. This is likely the case in several economies in South Asia and Sub-Saharan Africa. No doubt, Remittances play an important role in supporting the country’s external account, stimulating Pakistan’s economic activity also supplementing disposable incomes of remittance-dependent households. Experts recorded that remittances sent by millions of Pakistani migrants worldwide have supported the country’s economy by improving livelihoods and easing the pressure at times of economic crisis, such as energy crises, food insecurity and higher foreign debt repayments. According to the State Bank of Pakistan (SBP), overseas Pakistanis in Saudi Arabia statistics showed, remitted the largest amount in October 2023 as they sent $616.8 million during the month. The Amount enhanced by 15 percent on a monthly basis, and was nearly 6 percent up than the $582.5 million sent through the expatriates in the same month of the last year. Inflows from the United Arab Emirates (UAE) saw a significant jump of 19 percent on a monthly basis, from $399.8 million in September to $473.9 million in October. On a yearly basis, remittances enhanced by 11 percent, as against to $426.1 million noted in corresponding month last year. Remittances from the United Kingdom amounted to $330.2 million during the month, a rise of 6 percent as against to $311.3 million in September 2023. Meanwhile, remittances from the European Union jumped 28 percent year-on-year as they amounted to $297.5 million in October 2023. Overseas Pakistanis in the US sent $283.3 million in October 2023, a year-on-year rise of 8 percent. SBP furthermore recorded that the inflow of overseas workers’ remittances clocked in at $2.5 billion in October 2023, 11.5 percent higher on a month-on-month (MoM) basis when compared to $2.2 billion in September 2023. On a yearly basis, the monthly inflow recorded a rise of 9.6 percent as against to the remittances recorded in the corresponding month of the previous year. Experts attributed the rise in remittance inflows to an improvement in the exchange rate, amid a crackdown against currency smugglers and hoarders, which led to a reduction of the rate gap between the open and inter-bank markets. Workers’ remittances however, inflow of $8.8 billion has been registered during July-October FY2024, a fall of over 13 percent YoY or $1.56 billion, as against to $10.14 billion recorded in 4MFY2023.