Remittance cover for deficit falls 8pc to 71 percent

KARACHI: Cash sent home by Pakistanis living abroad is likely to provide 71 percent cover to the country’s trade deficit during the current fiscal year as tension in the Middle East and an oil slump are cooling the once red-hot growth in remittances, analysts said on Thursday. 

Insight Securities, a local brokerage house, in its latest report, raised alarm that weakening workers’ remittances could jeopardise the country’s balance of payment outlook amid rising trade deficit and lingering debt repayments, mounting pressure on reserves and currency.

Being the lifeblood of country’s balance of payments, remittances have invariably financed goods trade deficit and contributed 77 percent to the total trade deficit (goods, services and income) in the last 2 years, but not anymore, it added.

“The situation has started to deteriorate as exports have entered 11th consecutive quarter of decline, while home remittances' trend has also started to show signs of weakness,” analyst Zeeshan Afzal said in the report.  “After the first fall (in 14 quarters) witnessed in third quarter of 2016, remittances have remained stagnant at $4.7 billion in fourth quarter (4Q) (+0.8 percent YoY, +1.3 percent QoQ).”

Warning the remittances would only cover for the 71 percent of the total deficit (goods, services and income) in 2016 compared to 79 percent in 2015, the analysts forecast last year’s trade deficit yawning to a whopping $27.8 billion – the highest ever -- with exports going down by 4.4 percent and imports rising by 5.8 percent.

“During CY2016, remittance inflows have grown by a meager 2.3 percent (lowest growth rate since 2004) compared to 12 percent in 2015 and 18 percent in 2014," the report said. He blamed the depressed global demand, tightening US cross-border money transfer laws, and fiscal consolidation in Gulf Cooperation Council (GCC) countries were to be blamed for the last year’s tame flow of workers’ remittances into the whole South Asian region including Pakistan.

“Because the UAE-Pakistan and Saudi-Pakistan are among the lowest cost corridors in the world (as per 2015 data), therefore adverse economic conditions have profound impact on remittance inflows,” said the report.

Wrapping up his analysis, Afzal stressed the measures taken by the government to boost exports, raise tax from offshore accounts (through amnesty) or bring in investments/debt will be important to keep an eye on in 2017.

Furthermore, as per World Bank statistics published in Oct 2016, remittances to the low and middle income countries are likely to witness a meager 0.8 percent growth in 2016. Within this, India, the largest remittance receiver, is expected to see 5 percent dip, while Bangladesh and Nigeria would witness 12 percent and 2 percent fall respectively, in 2016.