Speaking to The Express Tribune, Invest and Finance Securities CEO Muzammil Aslam said Pakistan could face a balance of payment crisis should the substantial drop in remittances persist in coming months.
Pakistan received remittances amounting to $19.9 billion in 2015-16, up 6.4% from the previous fiscal year. Remittances play a major role in stabilising the country’s external sector, as they make up for almost half of the import bill and cover the deficit in the trade of goods accounts.
Aslam said recent job cuts in Saudi Arabia constitute one of the many reasons for the sudden drop in remittances in July. As many as 8,000 Pakistani workers are stranded in Saudi Arabia without employment following massive job cuts in its construction industry, according to Bloomberg News.
The drop in global energy prices has hurt oil-producing economies, especially in the Middle East. This has resulted in a decline in government spending, which is causing job losses, particularly in the construction sector.
Inflows from Saudi Arabia were the largest source of remittances in 2015-16 with the total remittances clocking up at $5.9 billion for the last fiscal year. The trend continued in the first month of 2016-17, with Saudi Arabia-based Pakistanis sending home $378.7 million in July. However, the inflows from the kingdom dropped 20.2% and 35% in July on an annual and month-on-month basis, respectively.
Aslam added that the recent exit of Britain from the European Union and the resulting drop in the value of the pound against major global currencies may also have played an important role in the sudden decrease in remittances last month.
Remittances from the United Kingdom remained $143.6 million in July, down 38.2% and 53.6% on an annual and monthly basis, respectively.
The Eid factor is also behind the drop in inflows in July, Aslam added. Remittances usually jump ahead of Eid and witness a drop in the following month, SBP data shows. Aslam said Pakistan received record-high remittances in June, as Eid was expected in the first week of July. Subsequently, remittances dropped in July, as most overseas workers had already remitted money ahead of the annual religious festival.
Speaking to The Express Tribune, SBP Director Abid Qamar dispelled the impression that the decrease in remittances in July was a result of job cuts in Saudi Arabia.
“I think the decline in remittances has nothing to do with Pakistanis losing jobs in Saudi Arabia,” he said, adding that these workers constitute a small percentage of the hundreds of thousands of Pakistanis currently employed in Saudi Arabia. “Those people lost their jobs many months ago. Their loss of jobs reflecting in remittances data only now is unlikely,” he noted.
Qamar also downplayed the Brexit factor on remittances, saying its effects will take many months to materialise. Instead, he attributed the notable drop in remittances last month to the Eid factor as well as the fewer number of working days in July.
Remittances received in July from the United Arab Emirates (UAE) decreased 20% to $293.7 million on a year-on-year basis. Remittances from Gulf Cooperation Council (GCC) countries, excluding Saudi Arabia and the UAE, clocked up at $169.6 million in July, down 14.3% from the same month of the preceding fiscal year.
Remittances from the United States also dropped to $169.7 million in July, down 33.5% from a year ago.
Published in The Express Tribune, August 11th, 2016.