Falling remittances

Remittances are a big part of the economy of developing countries. Unable to offer their citizens well-paying jobs at home, many developing countries rely on their citizens moving offshore as a way to counter-balance their trade deficits. Worryingly for all of them, global remittances to developing countries decreased for a second consecutive year. This will be bad news to economies like India and Pakistan, which remain heavily reliant on remittances. While India remains on top of the list of countries receiving remittances, its remittances have fallen by almost nine percent. Pakistan showed around three percent growth for 2015-16, but the figures for 2016-17 are likely to fall once again. Contrasted against 12 percent growth in remittances in 2014-15, the three percent growth for 2015-16 is low. Remittances remain highly dependent on a volatile global economy and the condition of the economy in the country that economic migrants reside in. The budget cuts in the oil-exporting Middle East have been central to the fall in remittances, when migrant workers from a number of countries with non-existent job protections remained unpaid or were downsized. There has been little intervention from their host countries, which has led to situations such as the deportation of 40,000 Pakistanis from Saudi Arabia in recent months.

While the economic managers of developing countries continue to laud remittances as their achievement, the truth is that there is little they can do to increase or decrease the flow of remittances. Pakistan relied on $19.8 billion in remittances for 2015-16 to finance its trade deficit and continue the increase in foreign exchange reserves. Around $429 billion flowed from more developed economies to developing ones in the last financial year. In these economies, the remittances are what support consumer spending and investments in real estate and stocks by the families of economic migrants. They arguably inflate the real economy and prices in these markets. They also inflate living standards, which may not be a bad thing, but they allow the home countries to ignore issues of job creation and providing social securities. The impact of a continued decrease in remittances is likely to be significant on both the balance of payments and the living standards in developing countries, such as Pakistan. Remittances are a significant part of the economic cycle in some of the biggest economies and reinforce the interdependence of the global economy. A crisis in one part of the global economy affects the everyday functioning of an economy that seems to have no apparent link. The importance of planning for such uncertainties needs to be recognised by our economic managers.