Remittance And Pakistani Economy Amid Pandemic

Pakistan is one of the worst-hit countries in South Asia right after India. And the cases are still on a rise and have reported  64000 positive cases and 1300 deaths as of the last week of May. 

Reuters reported that Pakistan could see a 9.4% fiscal deficit post-pandemic due to the shortfall in revenues, unemployment, and increased government expenditure against an earlier projection of 7.4%.

Remittances 

Latest World Bank report projects a 23% decline in remittances to Pakistan, totaling about $17 billion, compared with $22.5 billion in 2019, in the wake of the economic crisis caused by the Covid-19 outbreak. The top 5 countries remitting money to Pakistan are also in deep recession causing a spike in unemployment amongst the overseas workers.  

In preparation to offset the shortfall in the amount of money sent back to the country by migrant workers, the government has proposed an incentive package for overseas Pakistanis. 

What are the incentive packages for overseas Pakistanis? 

The incentive package is to come into effect for the next fiscal year includes tax exemptions and a special loyalty program. 

Tax Incentives

Under the incentives package, “withholding tax will be exempted from July 1, 2020, on cash withdrawal or on the issuance of banking instruments/transfers from a domestic bank account to the extent of remittances amount received from abroad in that account in a year”. The finance ministry has directed the Federal Board of Revenue to propose necessary amendments to the Income Tax Ordinance through the finance bill accordingly.

Special loyalty program

National Remittance Loyalty Programme is to be launched from September 1. Various loyalty and incentive schemes will be given through both; digital platforms such as mobile apps and offline platforms such as debit and loyalty cards. 

Under the program, additional benefits will be given to the overseas Pakistanis in the home country such as:

• Children of overseas Pakistanis sending remittances home will be also be given a 50% discount in Overseas Pakistanis Foundation (OPF) School and college fees
• And a special quota will also be allotted in the OPF housing schemes.

Money transfer agents and financial services have been affected by the control measures such as the lockdowns, shorter business hours, and social distancing. This has led to a dramatic spike in digital remittances as reported by money transfer companies like MoneyGram, Western Union, and Remitly.

Sending money online has proven to be one of the safest, cheapest, convenient, and the most efficient way of sending money home for overseas Pakistanis. We have covered the best ways to send money to Pakistan online in detail.

Pakistan Government measures

Pakistan’s regional and national administrations have taken up measures to tackle the challenges imposed on the economy:

• The fiscal stimulus package of 7 billion USD has been announced by the government of Pakistan to support low-income families, small and medium-sized businesses, food security, agriculture, and exports

• Prime Minister, Imran Khan has also announced a supplementary grant of 625 million USD for the "Residual/Emergency Relief Fund" to facilitate the support of the impacted population of Coronavirus pandemic

• The Securities and Exchange Commission of Pakistan (SECP) allowed all lending Non-Bank Finance Companies (NBFCs). This includes Non-Bank Microfinance Companies (NBMFCs) to hold off repayment of principal loans by their borrowers for 1 year. This implies only with the present circumstances of the outbreak of the COVID-19

• The federal cabinet announced launching domestic Sukuk bonds for generating 4 billion USD. This will help to finance the surging budget deficit and meet the growing larger financial requirements for combating COVID-19

• The Central Bank of Pakistan (State Bank of Pakistan) will refinance banks to provide financing at a reduced end-user rate of 3 percent for 5 years. This fund is provided for the purchase of equipment to detect, contain, and treat the COVID-19

• Cash assistance of 1.2 billion USD for the daily wagers working in the formal industrial sector and who had been laid off as a result of the COVID-19 outbreak

• The supplementary grant of 186 million USD to the Ministry of Commerce to payback duty drawbacks to textile exporters in the current financial year to improve their liquidity position

Transnational Aids

• The International Monetary Fund (IMF) Executive Board approved a US$ 1.386 billion loan to Pakistan to address the COVID-19 pandemic

• The Asian Development Bank (ADB) has announced 50 million USD from Pakistan's National Disaster Risk Management Fund (NDRMF) to support the government of Pakistan's preventive and response efforts to fight the outbreak of the COVID-19 in the country

Despite the government's proper measures taken up, Pakistan's financial capacity might not be enough to meet the larger economic effect of the COVID-19 crisis. A strong fiscal stimulus can be difficult for stimulating recovery. There is a need for debt repayment reprieve and further monetary back-up from the developed world and multilateral institutions namely the International Monetary Fund (IMF) and World Bank. 

The world leaders of developing nations have called for a moratorium on debt repayments in the wake of the global pandemic. The IMF and World Bank are looking forward to the final statement of G20 members to restructure the debts for the developing nations including Pakistan.

In conclusion, Pakistan was already facing a moderate recession before the pandemic hit the world. Now a pandemic induced recession coupled with a sharp decline in remittances and increased unemployment rates are all worrying indicators for the country. Fears of a complete economic collapse prompted the government to ease the countrywide lockdown. 

Remittance flows around the Muslim festival of Eid had seen a rise but it is not likely to remain for long. The road to economic recovery may now seem bleak not just for a developing country like Pakistan but for the world, but learning from countries like China and South Korea, we might be on the other side sooner than later.