18% Reduction in Foreign Remittances amid COVID-19: A Concern for Pakistan’s Economy
Pakistan has witnessed a significant decline in foreign remittances, with a double-digit drop of 18% or $429 million in May 2020 compared to the same month in the previous year. This substantial decrease has raised concerns about the country’s economic stability, particularly in the wake of the COVID-19 pandemic.
Impact of COVID-19 on Foreign Remittances
The State Bank of Pakistan (SBP) reported that foreign workers’ transfers totaled $1.872 billion in May 2020, a considerable decline from $2.3 billion in May 2019, which was the highest monthly transfer recorded. The primary reasons for this decline are job losses abroad and the closure of international borders, which have forced many foreign workers to return to Pakistan. As a result, the global economy has been severely impacted, leading to widespread job losses and a significant decline in international trade.
Many foreign workers have not only lost their jobs but are also facing difficulties in sending remittances back to their home countries. According to recent reports, over 10,000 Pakistani workers have been terminated from their jobs due to the COVID-19 pandemic, further exacerbating the decline in remittances.
Country-wise Remittances
In May 2020, significant contributions to worker remittances came from:
- Saudi Arabia: $436.2 million
- United States: $428.3 million
- United Arab Emirates: $323.4 million
- United Kingdom: $284.8 million
These countries have historically been the largest sources of remittances for Pakistan, and any decline in remittances from these countries can have a significant impact on the country’s economy. It is worth noting that the United Kingdom and the United States witnessed an increase of 25.7% and 6.6%, respectively, in remittances from April 2020, while Saudi Arabia and the United Arab Emirates saw a decline of 3.4% and 8.6%, respectively, during the same period.
Overall Remittances from July to May
Despite the decline in May, overall remittances from July 2019 to May 2020 increased by 2.7% or $551.5 million, reaching $20.654 billion. This is compared to $20.103 billion during the same period in the previous year. The increase in remittances during this period can be attributed to the government’s efforts to promote bank transfers and reduce the use of informal channels such as Hundi and Hawala.
Government Initiatives to Promote Remittances
To counter the adverse effects of COVID-19, the government has introduced various incentives for remitters and service providers, including banks and exchange companies. These initiatives aim to attract remittances through formal channels, reducing the country’s reliance on informal means of transferring money. The government has proposed allocating Rs. 25 billion to promote bank transfers and has also suggested abolishing taxes on money transfers between banks and other agencies.
These measures are expected to increase the flow of remittances through formal channels, ultimately benefiting the country’s economy. By promoting formal channels, the government aims to reduce the risk of money laundering and terrorist financing, while also increasing the transparency and efficiency of remittance transactions.
Frequently Asked Questions
Here are some common questions and answers related to the decline in foreign remittances:
- Q: What is the main reason for the decline in foreign remittances?
A: The main reasons for the decline in foreign remittances are job losses abroad and the closure of international borders due to the COVID-19 pandemic. - Q: Which countries are the largest sources of remittances for Pakistan?
A: Saudi Arabia, the United States, the United Arab Emirates, and the United Kingdom are the largest sources of remittances for Pakistan. - Q: What initiatives has the government taken to promote remittances?
A: The government has introduced various incentives for remitters and service providers, including banks and exchange companies, and has proposed allocating Rs. 25 billion to promote bank transfers.
The decline in foreign remittances is a concern for Pakistan’s economy, and the government’s initiatives to promote remittances are crucial in mitigating the adverse effects of COVID-19. The country’s current account deficit may be impacted by the decline in remittances, and it is essential to monitor the situation closely to ensure the country’s economic stability. With the government’s efforts to promote formal channels of remittances, it is expected that the value of remittances will exceed $21 billion, which will be a significant achievement for the country’s economy.
As the situation continues to evolve, it is crucial for the government, remitters, and service providers to work together to promote formal channels of remittances and mitigate the adverse effects of COVID-19. By doing so, Pakistan can minimize the impact of the decline in remittances and ensure a stable and prosperous economy for its citizens.
