Sustaining remittances
THE fear that the plunging oil prices might affect the flow of remittances from overseas Pakistanis has proved wrong. According to the latest data released by the State Bank, remittances totalled $8.981 billion in the first half of the current fiscal year, marking a growth of 15.2 per cent as compared to $7.792 billion in the same period last year. Remittances in December, at $1.583bn, were 20 per cent higher than in November and 14.3 per cent higher than in December 2013.
The details of the SBP report show that remittances increased from almost all the traditional sources, but dropped by 9.3pc to $196 million from the European Union. The highest amount was received from Saudi Arabia as remittances from that country rose 20pc to $2.649bn from $2.203bn during the same period last year. In terms of percentage, the highest increase was noted from the UAE as the amount increased by 25.5 per cent to $1.974bn compared to $1.572bn previously.The remittances increased by 4pc to $1.306bn from the United States, by 2pc to $1.169bn from the UK, and by 15.6pc to $1.037bn from the Gulf Cooperation Council (GCC) countries, which include Bahrain, Kuwait, Oman and Qatar.
An analysis of major remittance sources shows that oil price decline seems to have had no impact on the inflows. The average monthly inflow from Saudi Arabia - a major oil producer and major market for Pakistani labour - stood at 29 percent of the total in the first quarter. In the second quarter it averaged 30 percent of the total, with November and December 2014 both receiving 32 percent of the inflows from Saudi Arabia. These figures prove that falling oil prices are unlikely to hit Pakistan's remittance inflows in any significant way in the short term.
The assumption that inflows from Saudi Arabia and other oil producing countries with large Pakistani diaspora are not going to decline any time soon is further buttressed by the fact that these countries have large reserves to support their economies. Another pertinent factor is that a majority of Pakistani workers are engaged in construction-related projects that are of medium to long-term duration. These include projects for Qatar's FIFA 2022 bid and Dubai Expo 2020. Similarly, inspired by the Dubai model, there is a private sector real estate boom in Abu Dhabi, Bahrain, Oman, Ras Al Khaimah and even in Saudi Arabia. These should act as an adequate cushion for any future oil price decline.
However, if we look at the long-term prospects and want to ensure that remittances maintain their present level and also increase, there is a need to diversify the markets and the industry categories our workers go to. Construction-related labour exports will likely slow down over the next 5-6 years. What will then matter is quality labour export such as doctors, engineers, para-medical staff, hospitality business experts and other skilled personnel. At the same time steps are needed under the PRI scheme to direct the flow of an estimated $8 billion worth of informal remittances into the official remittance channel.