Significant amount of remittances in July.

Byline: S. Kamal Hayder Kazmi

International experts revealed that falling remittances may affect sovereign ratings by external finances and economic growth. Remittances are a key source of foreign currency receipts. As a consequence, lower remittances would most likely widen current account deficits, contributing to higher external financing needs. Unluckily Covid-19 pandemic is crippling the economies of rich and poor countries alike. Yet for many low-income and fragile states, the economic shock will be magnified through the loss of remittances - money sent home by migrant and guest workers employed in foreign countries. Remittances should enhance beginning in 2021, but the recovery is probable to be gradual. International experts have warned for five Asian nations counting whose credit ratings are predicted to be impacted because of a potential fall in foreign currency as remittances decline and offset gains from lower oil prices in the second half of 2020.

Falling remittances in economies that are dependent on them may affect sovereign ratings by pressures on external finances and economic growth, adding that the receipt of record high remittances through Pakistan consecutively in June and July was because of temporary factors. Furthermore, the global credit rating agency revealed that high debt-to-GDP ratios in Pakistan constrain the ability to respond to possible rising social-spending needs.

The receipts are set to drop because of a squeeze on income and loss of jobs through the expatriates abroad in the wake of Covid-19 pandemic and a global oil pricing crisis, mainly in the Gulf countries from where Pakistan attracts greater than half of the total remittances every month. It estimated by statistics, on an average, 12 percent drop in yearly remittances for the five nations, counting Pakistan, Bangladesh, Sri Lanka, India and Philippines compared to 20 percent anticipated through Asian Development Bank (ADB) and World Bank.

Pakistan is among the nations that rely on remittances, as the inflows stand at 7.9 percent of GDP. The potential drop in the flows would keep the country fiscal and current account deficits on the higher side and may impact its collection of revenue in taxes as well. According to the ADB, about 4 percent of households in Pakistan receive remittance income. The Gulf region is a significant source of remittance flows, mainly for countries in South Asia. The region accounts for roughly half of remittance inflows in...

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