Monthly remittances from two key Gulf states can each increase to over $1bn: says expert

KARACHI: Remittances to Pakistan from Saudi Arabia and the United Arab Emirates, the nation’s two main sources of these inflows in the Gulf region, could exceed $1 billion per month from each country if banking access or easy cross-border payment services are provided to the migrants residing there, chairperson of consulting firm Dellsons Group and banking expert Ibrahim Amin told The News in an interview.

Pakistani citizens working in Saudi Arabia and the UAE send significant remittances back home, averaging over $700 million and $600 million each month, contributing to a total of around $3 billion. In February, the money sent from Saudi Arabia reached $744 million, which reflects a 37.9 per cent increase compared with the same month last year and a 2.2 per cent rise from the previous month, the central bank data showed.

Similarly, remittances from the UAE rose to $652 million in February, marking a 69.5 per cent increase year-over-year and a 4.9 per cent rise from January.

Remittance inflows increased 32.5 per cent to $24 billion in the first eight months through February. During this period, inflows from the kingdom totalled $5.89 billion, while those from the UAE amounted to $4.85 billion. The government’s efforts to curb illegal foreign exchange trades, the increase in citizens employed overseas, the economic stability bolstered by the International Monetary Fund (IMF) loan programme, and the convenience of the Roshan Digital Account have collectively boosted the remittances sent home by migrant workers to support their families. These cash transfers help the nation’s economy, which is struggling to navigate the recovery. The State Bank of Pakistan (SBP) expects remittances to reach a record $35 billion in FY25, up from $30.25 billion in the previous year.

“Over 4.4 million non-resident Pakistanis are living in the KSA and UAE, but a majority of blue-collared workers do not own bank accounts, resulting in them having to rely heavily on non-banking channels, such as hawala and hundi, to send money to their families living in Pakistan,” Amin told The News.

Multiple Pakistani banks are operating in these two countries, but the non-regulatory condition for depositing a huge amount of up to 5,000 dirhams and riyals is a major impediment to owning a bank account, he added.

“Our commercial banks under the supervision of the banking regulator should enhance the facilitation level for non-resident Pakistanis in GCC countries to attract inflows of remittances from non-banking to formal channels,” he said.

Amin said the hawala and hundi arrangement is accessible to a large number of Pakistani migrants and blue-collar workers. The hawala/hundi operators even offer advance payment to their regular clients to win their loyalty for the informal system. However, he pointed out that UAE authorities’ action against hawala transactions and hawaladars will be favourable for Pakistan, as it may slow down activities of non-banking channels and connect Pakistani workers with the proper channels; however, banks should cash in on the regulatory restriction against these elements to enhance their footprint among overseas Pakistanis in a sustainable way.

The SBP carried out a cross-border integration of its payment system, RAAST, with the Buna Payment system of the Arab Monetary Fund (AMF), but the system is not yet functional for both countries.

Amin believes fintech operators could foster partnerships with banks to offer digital wallet accounts to non-resident Pakistanis as per the regulations of the host countries.

In an economy like Pakistan’s, remittance flows are vital as they consistently support the current account. In 2023, the country faced a significant balance-of-payments crisis, struggling to meet external debt obligations while its foreign exchange reserves dwindled. During this crisis, remittances, along with financial support from multilateral and bilateral creditors, as well as commercial lenders, played a crucial role in stabilising the situation.