Pakistan’s Middle East remittance bonanza
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Money transfers from overseas Pakistani workers have shown an increase of 50.7 percent during the month of June and touched almost $2.5 billion. This has allowed fiscal year 2019-20 to end with record high remittances amounting to $23 billion — an increase of 6.4 percent over the 2018-19 fiscal year. In terms of origin, the highest inflows were seen from Saudi Arabia and the United Arab Emirates — rising by 42 percent and 7 percent respectively.
The main reasons being provided for this unexpected increase were: savings from Hajj-related activities being remitted back to Pakistan; resumption of business activities in the Gulf after lockdowns eased and workers were able to transfer their money; earnings being sent on account of Eid Al-Adha and related preparations; and the fact that remittances are counter cyclical as economists will say, implying that when families back home are in distress, inflows from abroad tend to rise.
I would tend to argue that there could be more significant reasons for this trend of rising inflows which may only prove to be true as the time passes and future rounds of COVID-19 are experienced in both host and origin countries. To start with, it is likely that a significant layoff is being experienced by Pakistani workers abroad and those being laid off are in the process of transferring their accumulated savings. This was also mentioned recently by Pakistan’s ambassador to the UAE who said that even during the lockdown around 75,000 Pakistanis were sent back home from Abu Dhabi and Dubai. This point is also validated through data on new hiring, which has lately seen a negative growth. Also, the future outlook of economic recovery in the Gulf is not clear at the moment due to price and supply uncertainties faced by the oil markets.
The main reasons being provided for this unexpected increase were: savings from Hajj-related activities being remitted back to Pakistan; resumption of business activities in the Gulf after lockdowns eased and workers were able to transfer their money; earnings being sent on account of Eid Al-Adha and related preparations; and the fact that remittances are counter cyclical as economists will say, implying that when families back home are in distress, inflows from abroad tend to rise.
Dr. Vaqar Ahmed
We also understand that due to restrictions on air and land traffic, travel and physical movement of people, the inflows arriving through hawala or hundi — arrangements made outside of banking channels, by a person in a host country to pay a certain sum of money to a person in a home country — may have seen a major decline. This decrease in money being sent through non-official channels may have also been possible due to heightened regulations and compliance with anti-money laundering regulations. It is likely that due to these factors a higher volume of remittances is now pouring in through formal banking channels. The State Bank of Pakistan along with several commercial banks have also announced measures which reduce the costs for transferring remittances from abroad.
Perhaps the COVID-19 pandemic is one of those times when economists will set aside conventional fears associated with higher remittance inflows, including the so-called Dutch disease — adverse effects of appreciation of the real exchange rate and vulnerabilities which arise as foreign currency inflows dry out. At this point, all economies, rich or poor, are struggling to protect themselves against any balance of payments crisis, in which higher remittance inflows certainly help. We also understand from the assessment provided by the International Monetary Fund that the longer-term impact of COVID-19 will be worse than the global financial crisis of 2008.
In view of the above assessment, the government will need to go beyond financial measures to secure future remittance inflows and scale up diplomatic efforts to help Pakistani workers abroad. The priority should be to negotiate with host countries ways and means through which laid-off Pakistani workers could stay on until lockdowns are fully lifted and economic activity resumes. Buying time for such workers is important.
Second, more attention needs to be paid to the workers who had secured placements for 2020 but found themselves in limbo due to withdrawn job contracts or travel restrictions. Many of them have left their prior jobs which they were performing locally. Such workers will need assistance in the coming days to rekindle their relationship with potential employers abroad.
Finally, COVID-19 presents opportunities for Pakistanis wishing to be absorbed abroad in the sectors of general health care, child and elderly care, hospital-based services, etc. This is where the Ministry of Overseas Pakistanis and Human Resource Development can ramp up its efforts. The ministry could carry out a rapid mapping exercise to determine which countries are expanding in demand for care services. Several local think tanks and academic institutions in the country have the capacity to do such a research exercise for the ministry.
Based on this assessment, the Foreign Office may engage in an urgent dialogue with these countries and secure placement for Pakistani workers. Development partners in Islamabad can help strengthen government-to-government talks on this subject. At the same time, it is equally important to increase the supply of such workers, through a cogent skill development plan, so that once the demand comes, a much-desired opportunity is not lost.
- Dr. Vaqar Ahmed is an economist and former civil servant. He is the author of "Pakistan’s Agenda for Economic Reforms" published by the Oxford University Press.
Twitter: @vaqarahmed
