What affects Pakistan’s remittance inflows?

Remittances to Pakistan have remained over $2 billion for seven consecutive months despite the Covid-related global economic slowdown. Last week, we discussed a possible reason for this growth: the increasing popularity of formal money transfer channels among Pakistani migrants. This explanation is particularly valid in case of Pakistani workers residing in GCC countries.

Another reason which may help better understand the increase in remittances from Western countries is the increase in investments by overseas Pakistanis. The inflows from Western economies has grown substantially: remittances for June-December from the United States grew 27%, from the UK by 48%, and from EU countries by 56%. Prolonged lockdowns and related economic weakness of these countries made investing in developing countries like Pakistan an attractive proposition. The amount invested in the State Bank’s Roshan Pakistan digital accounts crossed $280 million. It also reflected in greater interest in construction and real-estate activity by overseas Pakistanis. Real estate is one of the foremost investments that migrants from developing countries make in their home country as it provides a way to secure their savings.

Yet another factor that distinguishes the remittance inflows to Pakistan and Asian countries from other recipients such as Mexico, Egypt, Morocco and Tajikistan, and may explain their sustained rise, is the diversity of their sources. The latter group principally depends on one country or region for the bulk of their remittances: the US for Mexico and other Latin American and Caribbean (LAC) countries, the GCC for Egypt and Jordan, Russia for Tajikistan and other former Soviet republics, and EU for Morocco, Tunisia and East European countries. In contrast, Pakistan’s migration profile and remittance portfolio is diversified, with no single country particularly dominant. According to 2020 statistics, the GCC made up 62% of the aggregate. This is followed by Europe including the UK (21%), North America (10%), Australasia (3%) and other countries (4%). These regions widely differ in their reliance on technology and natural resources for economic growth. Consequently, diversity in sources of remittances mitigates possible negative effects of the host-country’s business cycles and reduces Pakistan’s dependence on a particular source.

Finally, remittance increase may be a direct mechanical consequence of more Pakistani workers going abroad. Recently, the government signed many MoUs with various countries and new labour markets such as Japan are being explored. After three years of falling numbers, the number of Pakistani workers abroad grew by 63% in 2019. Though the number leaving for Western countries is unknown, the number of registered workers in the GCC rose sharply — departures for Saudi Arabia increased from 100,910 in 2018 to 332,713 in 2019. The government managed to send a record number of nearly a million Pakistanis abroad during the past two years. This increase is also reflected in more financial transactions made to Pakistani banks without sizeable change in the amount transferred per transaction. This source of rising remittance inflows may now be in danger: Covid-related travel restrictions and reduced demand for foreign workers due to global economic slowdown have hit the number of Pakistani workers going abroad. Besides, the Bureau of Emigration and Overseas Employment reported tens of thousands of Pakistani workers losing their jobs in the Gulf and returning home. With indigenisation policies such as Saudisation and Emiratisation in vogue, many laid-off workers may not get a work visa when the economic situation of these countries improves. This could seriously affect the future potential for increase in remittances.

Published in The Express Tribune, January 21^st, 2021.

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