KARACHI: Workers’ remittances reached an unprecedented level of $14.2 billion during the first half of the current fiscal year of 2020/21, up 24.9 percent compared to the same period a year earlier, as incentives attracted expats toward the formal money transfer channels, the central bank said on Friday.
“This strong growth in workers’ remittances is attributable to the increased use of formal channels on the back of sustained efforts by the government and SBP [State Bank of Pakistan] to encourage inflows through official channels as well as limited cross-border travel due to the second wave of the COVID-19 pandemic, together with favorable foreign exchange market dynamics,” the SBP said in a statement.
“This is the highest half yearly growth since FY2007,” it said.
The SBP said remittance inflows have been well-diversified. Most of the inflows during H1-FY21 were sourced from Saudi Arabia ($4 billion), United Arab Emirates ($3 billion), United Kingdom ($1.9 billion) and United States ($1.2 billion).
Workers’ remittances maintained their strong momentum for the seventh consecutive month in December. Remittances rose to $2.4 billion, growing by 16.2 percent on a year-on-year basis and 4.2 percent on a month-on-month basis, it said.
In November 2020, the remittances amounted to $2.3 billion. They were $2 billion in December 2019. The SBP revised up workers' remittances projection for this fiscal year to $24-25 billion from the previous forecast of $22-23 billion.
However, projections of workers’ remittances are subject to risk from the outlook for the oil-exporting economies, whose fiscal balances might deteriorate further with the escalation in global Covid infections. This may translate into a sizable reduction in their demand for foreign workers, leading to lower remittance inflows to Pakistan.
The orderly foreign exchange rate conditions throughout the coronavirus lockdown helped create a friendly environment for remitters to send money to Pakistan. Moreover, air travel restrictions contributed to the formalisation of informal remittance flows and build-up in savings.
“Previously, air travel used to be a major source of cross-border funds transfers. The informal channel involved sending funds (cash) through friends or family members travelling from one country to another,” the SBP said in the first quarter economic review report.
“Meanwhile, the other channel comprised hundi/hawala agents, which specifically utilised air travel to transfer funds from one country to another, generally in large volumes. With the severe restrictions on air travel, funds transfers through both these channels came to a near halt, and likely played a major role in pushing expatriates to adopt formal banking channels to remit funds back home. At the same time, the air travel restrictions, including curbs on religious travel, likely contributed to a build-up in savings with the overseas diaspora. As a result, expatriates were able to remit back higher funds.”
The SBP said the unprecedented fiscal and monetary support measures in the world’s top migrant-destination economies in the western hemisphere and the Middle East have likely played a key role in supporting workers’ cash flows, either via continued provision of wages or through cash transfers. “After the Covid outbreak, Pakistan and Bangladesh were among the countries that announced incentives to attract remittances via formal channels. The banks were also encouraged to promote digital channels for sending and receiving remittances and to introduce incentive schemes for their own customers.”