COVID-19 impacts on remittances

Secretary Finance Naveed Kamran Baloch on Thursday said timely action and coordinated efforts by the government and the country’s banks helped restrict the adverse impacts of COVID-19 on the flow of remittances into Pakistan.
Remittances to Pakistan declined 4.3 percent year-on-year during March-May period of the year 2020 compared with World Bank’s forecast of 23 percent for 2020.
“The decline in case of Bangladesh is 16.7 percent during March-May 2020 the only comparable regional data available,” he said while addressing a webinar arranged by DFID-UKAid to mark the Call to Action and the International Day of Family Remittances Action.
Baloch informed the participants the initial assessment in Pakistan suggested a sharp decline in remittances from April 2020 onwards due to COVID-19 pandemic.
“However, the government adopted timely measures to mitigate these adverse impacts by asking the banks to conduct aggressive awareness campaigns to inform the senders and recipient of remittances about available digital/online channels for sending and receiving remittances,” he said.
The finance secretary said the banks were also asked to conduct similar campaigns with their overseas correspondents and further advised to ensure availability of cash in remittance rich areas to cater to the needs of recipient of cash remittances.
He explained the government instructed the banks to rationalize’ compliance checks with respect to both recipient and sender to ensure swift delivery of remittances adding the banks were also requested to promote remittances through different marketing activities and incentive schemes (through gifts and lucky draws etc); and enhance their limit for cash over counter.
The central bank’s team of experts on AML/CFT had communicated the message and explained true spirit of AML/CFT regime to banks.
The secretary said in response to the measures suggested by the government, the banks augmented their efforts through this period by enhancing their marketing efforts through a record number of TV commercials of individual banks and a joint TV commercial by 6 large banks aired on domestic TV Channels and their international transmissions during May-June 2020 with particular focus on awareness regarding digital channels for sending and receiving payments.
Baloch was of the opinion that an active support of the Government of Pakistan to promote remittances proved a shock absorber during COVID-19.
B-Will Covid affects our remittance inflows?
Pakistan is one of the world’s top 10 recipients of international remittances, according to the World Bank. In 2019, it received $21.8 billion in remittances from an estimated six million Pakistanis living abroad, principally in North America, Europe and GCC countries. In addition to these remittances sent through formal channels, about 40% is transferred through hand carry, hawala and other informal means annually.
Thanks to a record number of Pakistani workers who went abroad in 2019, according to the Bureau of Emigration and Overseas Employment (BEOE), remittances were expected to increase in the coming months. In fact, at the onset of the Covid-19 outbreak, remittances for February rose by 16% to $1.82 billion. The upswing was wide-ranging, with a substantial increase from all major sources: Saudi Arabia (14%), UAE (15%), other GCC countries (17%), EU countries (18%) and US (38%).
Likewise, despite increasing economic challenges, remittance inflows for March remained robust. Remittances grew by 9% from March 2019 to 2020. All major migrant destinations showed substantial growth except for the UK from where remittance inflows fell by 12%.
The significance of these inflows for the Pakistani economy can hardly be overstated. During the first half of FY2019-20, remittances accounted for 49.15% of the country’s import receipts and covered almost the entire trade deficit.
The overseas Pakistani community has become more geographically diversified during the past decade, making their remittances more resilient. Remittances from Pakistanis in the Gulf, which made up more than two-third of remittances, are now down to 54%. Whereas there is an increase in remittances from Malaysia, Australia and other Asia-Pacific countries while those from North America and Europe have kept pace.
This diversification has reduced Pakistan’s excessive reliance on oil-exporting economies and kept the economy stable. Another beneficial characteristic of remittances pertains to their generally counter-cyclical nature.
When the Pakistani economy reels from high prices of imported oil, rising remittances from oil-exporting countries keep the damage in check. Conversely, during oil price slump, Pakistanis in Western countries remit more to invest in the country’s growing economy. This pattern may be behind the growth of remittances during the past two months which surprised analysts.
However, the pandemic may endanger this stabilizing role of remittances. The world economy has come to a halt. Airplanes are standing idle; businesses closed; investments are on hold; new hiring has stopped.
All major economic destinations of Pakistani migrants have significantly slowed down. Additionally, the Saudi-Russia oil-price war has seen oil prices plummeting to below $30 per barrel. This has dented the finances of GCC countries. These shocks may eventually show in the volume of remittance inflows to Pakistan. If the global economic weakening prolongs, Pakistani overseas workers will begin losing jobs. Workers, particularly in the Gulf, are often employed in construction and services sectors. These are some of the professions that could be seriously affected from a prolonged lock-out.
Even a shortfall of a few billion dollars of remittances may tip the delicate balance in external payments the country had achieved prior to the outbreak. However, with hand carry not a possibility due to travel restrictions and people preferring electronic transfers over currency notes may prove a mitigating factor. This transition may be facilitated by the State Bank, and commercial banks can streamline their electronic remittance products. This will however not lessen the financial difficulties that workers may face due to loss in income.
In the coming future, overseas Pakistani workers will need all the help they can get from the authorities to limit their losses. The government may have to discuss with authorities of GCC and other countries the rights of workers whose job permits expire due to travel restrictions and the payment of pending dues of those who lose their jobs. This will be necessary to ensure the well-being of Pakistan’s key assets.
C-Inflows from Saudi Arabia up 42% as coronavirus spare remittances to Pakistan
Central bank data shows remittances rose by 50.7% during June 2020 to reach a record high of $2,466.2 million
In fiscal year 2020, remittances increased to a historic high of $23.12 billion, 6.4% more than last year
KARACHI: Pakistan received record remittances in June this year, the central bank said on Monday, with total inflows from Saudi Arabia up by 42% compared to last year, which experts say is largely because of the reopening of remittance channels previously shut down after the coronavirus pandemic began at the beginning of the year.
Strict curfews, lockdowns and travel bans enforced around the world to slow the spread of the COVID-19 outbreak have decimated jobs and slashed remittances from migrants, cutting off a lifeline for millions.
But Pakistan central bank data shows remittances rose by 50.7% during June 2020 to reach a record high of $2,466.2 million compared with $1,636.4 million in June 2019. In fiscal year 2020, the bank said, remittances increased to a historic high of $23.12 billion, 6.4% more than last year.
“Inflow of workers’ remittances registered an increase of 7.8% during March-June 2020 pandemic period compared with the corresponding period of 2019,” the central bank said,
A number of factors have contributed to the significant increase in remittances this June.
“Since many of the countries eased lockdown in June, overseas Pakistanis were able to transfer accumulative funds, which they were unable to send earlier,” the central bank said. ” Further, it is also believed that they sent remittances to support extended families and friends due to COVID-19.”
During June 2020, inflows from Saudi Arabia increased by 42% to $619.4 million as compared to last year’s receipts. The United Arab Emirate UAE was the second largest contributor to Pakistan despite more than 70,000 workers being sent back to Pakistan after the coronavirus crisis broke out. Pakistan received 7.1 percent higher remittances from the UAE, or $431.7 million in June 2020, and $4.66 billion in FY20, against $4.61 billion of FY19.
Analysts say the record inflows of remittances are mainly due to the reopening of remittances channels, not available during the lockdown period.
“Besides opening up of transfer channels, the upcoming festival of Eid is also one of the reasons for the highest ever inflows,” Muhammad Sohail, CEO of Topline Securities, told Arab News.
D-Decline in Gulf remittances to cause unemployment in Pakistan
Decline is largely due to job and wage losses of migrant workers. As remittances sent home by migrant workers to South Asia are expected to sharply decrease amid the global economic slowdown caused by the COVID-19 pandemic, Pakistani experts say investment in vital sectors at home will decline, causing huge unemployment.
Global remittances are projected to decline by about 20 percent this year from $714.2 billion in 2019, the World Bank said in a statement on Wednesday. Remittances to South Asia are forecast to drop by 22 percent to $109 billion.
The projected fall is largely due to job and wage losses of migrant workers in host countries and will deal a heavy blow to economies in the developing world.
The International Monetary Fund (IMF) estimates that Pakistan’s remittance will drop by over $5 billion during the fiscal year 2020 and 2021, as activity in Gulf countries decreases.
Saudi Arabia and the United Arab Emirates are the main hosts for overseas Pakistani workers and largest sources of Pakistan’s remittances.
“The decline in remittance projected by different sources after the COVID-19 outbreak, world recession and depression greater than that of 1930, would badly hit Pakistan’s economy, which was already sluggish in the pre-coronavirus period,” senior economist Dr. Ikram Ul Haq told Arab News.
“It will squeeze investment in the real estate, housing and construction sector that have been playing a vital role for demand in over 40-plus industries and creating huge employment,” he said.
Pakistan Institute of Development Economics (PIDE) projects that the remittances will decline by 9 percent to 14 percent from the projected target of $23.8 billion in the fiscal year 2020 and will range between $14.13 billion and $22.54 billion in FY21 against projected inflows of $26.4 billion.
“In the coming days, if remittances decline drastically, as projected, it is going to be negative in two ways: by forcing the government to borrow more externally to keep foreign exchange reserves and by lowering investment in vital areas of the economy, which will decrease GDP growth more than estimated,” Dr. Haq said.
While according to the IMF, the COVID-19 shock will affect Pakistan’s balance of payment, some economists argue that it will be largely compensated by a decline in global oil prices and imports.
“The decline in imports will be more than any likely dip in exports and remittances,” senior economist Muzamil Aslam told Arab News. “This implies that the balance of payment situation will not be too drastic in the post COVID-19 days,” he argued.
On Thursday Pakistan’s central bank said that the current account deficit had improved by 74 percent from $10.3 billion to $2.8 billion due to declining imports in the July-March 2020 period.
E-WB sees 23pc cut in Pakistan’s remittances
The World Bank says that remittances to Pakistan in 2020 are projected to decline by 23 per cent, totaling about $17 billion, compared with $22.5bn remitted in 2019, in the wake of the economic crisis caused by the Covid-19 outbreak.
And, the bank warns, this crisis could be long, deep, and pervasive when viewed through a migration lens.
The latest issue of World Bank publication, Migration and Development Brief focusing on the Covid-19 crisis, says that the outbreak has affected both international and internal migration in the South Asia region.
As the early phases of the crisis unfolded, many international migrants, especially from the Gulf Cooperation Council (GCC) countries, returned to countries such as India, Pakistan, and Bangladesh – until travel restrictions halted these flows. Some migrants had to be evacuated by governments, such as those of China and Iran.
The publication says that the flows of remittances in 2020 to low- and middle-income countries are expected to drop by around 20pc to $445bn, from $554bn in 2019. In the midst of this sharp decline, the relative importance of remittance flows as a source of external financing for low- and middle-income countries is expected to rise.
This is because foreign direct investment (FDI) is expected to decline by even more, due to travel bans, disruption of international trade, and wealth effects of declines in the stock prices of multinational companies.
The global average cost of remittances declined to 6.8pc in the first quarter of 2020, from 6.9pc a year previous. This remains far above the Sustainable Development Goal (SDG) target of 3pc. Remittance service providers have been affected by lockdowns, shorter business hours, and social distancing. This has increased the relative importance of electronic transfers, since some cash-based services and remittance operators have been closed or impacted negatively by the crisis.
Although the use of digital payment instruments for sending remittances is increasing, poorer and irregular migrants often lack access to online services. They require the origination and distribution of funds through banks, payment cards, or mobile money.
Online transactions, like cash-based services, require remittance service providers to exercise vigilance against fraud and financial crime to comply with anti-money laundering and countering the financing of terrorism (AML/CFT) regulations. However, such due diligence has become difficult amid staff shortages.
The publication says that so far the government policy responses to the Covid-19 crisis have largely excluded migrants and their families back home.