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The tale of rising remittances

Dawn, Pakistan, 22 February 2021 - When the Covid-19 health crisis struck the world forcing countries across the globe into lockdown to slow down the spread of the plague, multilateral lenders had forecast developing nations like Pakistan would see a significant drop in the remittances sent home by their migrant workers, hitting their economies hard. However, such forecasts have proved wrong — at least until now — in the case of many countries, including Pakistan.

Surprisingly, Pakistan saw an increase in these transfer even when other nations recorded a substantial decline in remittances in the first half of 2020. The boom continues with the country receiving 24 per cent more remittances in the first seven months of the ongoing fiscal year to January with these transfers totalling $16.5 billion during this period, up from $13.3bn from a year ago. Many expect this bonanza to continue for some time now even though much remains uncertain.

The government expects to receive about $28bn remittances during the current financial year, up by around 22pc from $23bn last financial year

Initially, analysts insisted that the increase in remittances in Pakistan owed to restrictions on Hajj imposed by the Saudi government to curb virus spread. The same argument was used to explain the phenomenon for other Muslim countries like Bangladesh, which has experienced a 35pc increase in these transfers since July.

Having spent less money on Hajj, the analysts said, the workers abroad had more to send back to Pakistan. Others believed the migrant Pakistani workers returning home after losing jobs in the host countries had contributed to the increased volume of remittances by bringing back their life savings.

However, the sustained increase in remittances indicates that the restrictions on international travel have played a major role in making overseas workers turn to official banking channels for transferring money to their families. Besides, the recent government curbs on hundi/hawala implemented to meet the requirements of the Financial Action Task Force to exit its so-called grey list have also helped the shift from informal channels to banking channels.

Yet another reason remittances are increasing is the rising efficiency of the banking channels used by the workers to send their money. The central bank, for example, has reduced the threshold for formal money transfers from $200 to $100.

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Source: https://www.dawn.com/news/1608611

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