Rising remittances
Expatriates are sending far more money to Pakistan through banking channels than before as 24 per cent growth in home remittances in the first seven months of the ongoing fiscal year to January has defied forecasts to the contrary.
Amid Covid-19 restrictions, the phenomenon has puzzled many because reportedly thousands of workers were forced to return home after losing their jobs. There are reports that the State Bank is planning to conduct a study to analyse the remittance growth factors. Until we have something solid to explain this trend, some analysts are of the view that it is safe to assume that international travel restrictions related to the coronavirus pandemic are a major reason for the increase in home remittances.
This is especially true for countries such as Pakistan and Bangladesh where a big chunk of non-resident citizens have in the past normally remitted cash through friends or 'informal channels' like hundi and hawala for numerous reasons the low levels of financial inclusion and literacy among them.
The remittance growth rate in Bangladesh is even swifter than in Pakistan, which shows greater use of informal channels and travel by that country's overseas workers' sending money to families at home. Besides, remittances are growing rapidly from the US and Europe where travel restrictions are stricter. Another crucial factor is related to the measures adopted by the government and the central bank to block illegal and informal money transfers into and out of the country to comply with FATF conditions in order to exit the task force's grey list.
Moreover, the State Bank has recently made it much easier for expats to send back money - and more swiftly through banking channels. Further, the launch of the Roshan Digital Accounts for the diaspora has already attracted more reliable, long-term deposits of almost half a billion dollars in the last few months.
Whatever the factors, the increasing remittances that have averaged $2.35bn a month this fiscal are helping the economy in many ways and come in handy at a time when the trade deficit has again started to expand as imports grow on the back of slower economic activity on account of Covid-19, failure of the cotton crop, food shortages and rising global oil prices. But the question is: what happens when the world returns to normal and travel curbs are eased once the plague subsides? Will the remittance growth momentum continue?
The answer to these questions lies in the government's ability to enhance customs controls at the ports to discourage currency smuggling, and the success of the central bank's measures to curb illegal channels and encourage commercial banks to make their services accessible to people living in the country's backward and financially unconnected regions. The return to pre-virus business as usual is not an option.