Remittances to Pakistan rose to $2.77 billion in July 2020, beating all previous records to reach an all-time high in a single month, according to the State Bank of Pakistan (SBP) data.
$2.77 billion represents a year-on-year growth of 36.5 percent compared to $2 billion, which was received in the same month last year. Remittances have been on a rise defying predictions amidst the global economic fallout and job losses. Last month, Pakistan recorded $2.47 billion.
Top remittance sending countries for the month of July were from Saudi Arabia ($821.6 million), followed by the UAE ($538.2 million), UK ($393.9 million), and the US ($250.6 million).
Reasons for an increase in remittances
There are two primary reasons that can be attributed to the record increase in remittances:
A massive drop in oil prices in the wake of the Coronavirus pandemic has been a double whammy for many Pakistanis Overseas. As Overseas Pakistani Workers prepare to return home due to the job losses, they are sending their savings. This has also been a common trend in countries like the Philippines and Bangladesh that are highly dependent on remittances especially from the Middle East.
In 2009, State Bank of Pakistan, Ministry of Overseas Pakistanis, and Ministry of Finance launched a joint initiative called Pakistan Remittance Initiative (PRI) in efforts to streamline the ownership structure for remittance facilitation and financial literacy in Pakistan. One of its most consistent marketing campaigns has been to reduce dependencies on informal channels such as Hawala and Hundi and to promote formal channels for sending remittances.
Lockdown measures and a ban on international flights due to the Coronavirus Pandemic have curtailed the availability to send money through informal channels and as a result, we see a significant decline in informal methods of sending money home and an increase in formal channels especially in the digital channels.
Other factors such as family and friends sending money for Eid, a weak Pakistani Rupee, and the recent announcement of the tax amnesty in the construction sector. We also have to remember that the remittances by their family members working abroad make up a significant portion of the household incomes in Pakistan. So, the money had to keep flowing. And unavailability of informal channels has prompted the much-welcomed switch to the formal financial channel of sending money internationally.
In light of the shift in remitters’ behavior, PRI also introduced a new waiver that reduced the threshold for eligible transactions from $200 to $100 under the Reimbursement of Telegraphic Transfer (TT) Charges Scheme, incentivizing the adoption of digital channels.