Growth in remittances nearly stagnated in developing countries with ‘exception’ of Pakistan

In contrast to other developing countries, inflow into Pakistan still growing

KARACHI: Growth in remittances flowing into developing countries has “nearly stagnated,” with the exception of Pakistan where the year-on-year increase in net inflows appears “quite decent,” according to the State Bank of Pakistan (SBP).

Overseas Pakistanis sent remittances amounting to over $17.8 billion in July-May, up 5.6% from a year ago. In contrast, year-on-year growth in remittances had clocked up at 17.8% in the first 11 months of the preceding fiscal year, which is reflective of a sharp drop in the pace of net inflows.



Remittances have slowed down around the world for a number of reasons, such as stagnant growth in developed countries, falling oil prices and consequent changes in labour markets of the Gulf countries, tighter regulations for cross-border money transfers and the refugee crisis in Europe, the SBP said in its latest commentary on the state of the economy.

Although the slowdown in the year-on-year increase in remittances flowing into Pakistan looks “unimpressive” in view of the pace recorded in the recent past, the SBP said Pakistan has fared relatively better than other regional countries.

“We believe growth could have been slightly higher if not for the government’s decision to reduce the effective subsidy on the remittance business,” the SBP said while referring to the reduction of subsidy from 25 Saudi riyals to 20 Saudi riyals on every remittance transaction from July 1, 2015. In addition, the government also increased the minimum transaction amount to qualify for the rebate to $200 (or equivalent) from $100.

These measures will limit the expansion of the overall remittance business, the central bank noted. It also urged banks to establish new alliances with money transfer operators (MTOs) and introduce innovative solutions to grow the remittance business.

Two of the major sources of remittances for Pakistan are the Gulf countries and the United States. SBP data shows the pace of inflows from each of these sources has slowed down markedly in the past 11 months.



The Gulf corridor

With almost $5.4 billion, inflows from Saudi Arabia have been the largest source of remittances for Pakistan in Jul-May. But these went up only 5.7% compared to the year-on-year increase clocked up at 19.6% in the corresponding period of the last fiscal.

The SBP believes a reduction in fuel subsidies and an increase in taxation will decrease savings of expatriate workers in the short term, thus squeezing the amount they can remit back home.



Remittances received in Jul-May from the United Arab Emirates (UAE) increased just 3.2% as opposed to a massive surge of 35.3% in the same period of the preceding fiscal year, SBP data shows. Similarly, remittances from Gulf Cooperation Council (GCC) countries, excluding Saudi Arabia and the UAE, grew 11.5% in Jul-May in contrast with 16.1% growth recorded in the comparable period of the preceding fiscal year.

Yet the SBP believes Pakistan has been spared the worse. While overall remittance flows from the GCC have definitely slowed down, the SBP said these have not declined as in the case of India, Bangladesh and Sri Lanka.

According to the SBP’s “wishful arrangement,” diplomatic arrangements should be made with the GCC to shield Pakistani workers from any discriminatory action in the region.



The US corridor

Remittances from the United States remained $2.2 billion in Jul-May, down 8% on a year-on-year basis. In contrast, remittances from the United States had grown 8.8% in the same period of the preceding fiscal year.

The SBP blames stringent regulations faced by money transfer operators (MTOs) for the decline in remittances from the United States. These regulations have “significantly increased” compliance costs for banks and MTOs, the SBP said, adding that they have also created operational difficulties in the remittance transfer business.

Banks have traditionally been more regulated, but the inclusion of large MTOs under a new regime has had a wide-ranging effect on the remittance business, it noted.

The US Consumer Financial Protection Bureau (CFPB) in October 2013 introduced stern measures to ensure compliance with anti-money laundering and counter-financing of terror (AML/CFT) rules by money service businesses. As a result, MTOs have had to invest sizable amounts in integrating their systems and upgrading their technological infrastructure, it said.

Published in The Express Tribune, July 13^th, 2016.

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