The rise and rise of remittances.

Remittances remained above the $2 billion mark in December 2020 for the seventh month in a row. In the first half of 2020-21, inflows totalled $14.2bn. The amount was about 25 per cent higher than $11.37bn received in July-Dec 2019.

The half-yearly inflows of remittances that surpassed merchandise exports of $12.1bn by a wide margin came as a pleasant surprise. Not many were expecting this due to a decline in the global economy amidst the Covid-19 pandemic. A slump in Pakistan's manpower exports - from 625,203 in calendar year 2019 to 224,705 in calendar year 2020 - made the unprecedented increase in remittances all the more appreciable.

Analysts cite several factors to justify it: Pakistanis coming back from host countries after losing jobs are bringing back their savings; they are sending more money back home to provide greater financial support to families as Pakistan's domestic economic growth turned negative; an effective crackdown on illegal transfers of foreign exchange has pushed up official inflows; and the central bank's scheme to attract remittances through Roshan Digital Accounts for overseas Pakistanis has started showing the impact.

Each of these factors has undoubtedly contributed to the meteoric rise of remittances. But will remittances continue to grow this fast? Or will the growth rate will decelerate at some point? Now is the time to separate the one-off factors of remittances' growth and focus on structural changes made in the remittances' regime that have so far kept them growing.

Our external borrowings will go down if a reasonable portion of remittances goes into savings and investment

This requires a closer examination of the relevant datasets. This also requires inputs from the Pakistani diaspora. The State Bank of Pakistan (SBP) is busy doing both. Banks are now reporting to the SBP greater details of remittances to help central bankers assess the patterns of growth and the SBP has launched an online survey seeking input from expatriate Pakistanis.

The two exercises should shortly provide a better understanding of what structural positives pushed up remittances besides giving a clue about what could be done to maintain and improve them. The SBP may also consider investigating another caveat: did some moneyed people in Pakistan bring back their funds stashed abroad - routing the same as remittances of their connections in the Pakistani diaspora? And if so, whether this violated any regulations of the central bank.

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