Subdued remittances: ‘New Normal’ for Pakistan and South Asia

KARACHI: Remittances have remained the life blood of Pakistan Balance of Payments, which has fully financed Pakistan goods trade deficit and contributed 77% to the total trade deficit (Goods, Services and Income) in last 2 years.

“However, the situation has started to deteriorate, where Pakistan exports have entered 11th consecutive quarter of fall while home remittances trend has also started to show signs of weakness. After the first decline (in 14 quarters) witnessed in 3Q 2016, Pakistan remittances have remained stagnant at US$4.7b in 4Q (+0.8% YoY, +1.3% QoQ),” Zeeshan Afzal at Insight Securities said.

During 2016, Pakistan trade deficit is estimated to escalate to US$27.8b, (highest ever), in which exports to dip 4.4% while import could rise 5.8%. However, remittances would only cover for the 71% of the deficit compared to 79% in 2015.

During CY2016, Pakistan remittances flows has grown by meager 2.3% (lowest growth rate since 2004) compared to 12% in 2015 and 18% in 2014. The slowdown is blamed to the twin factors of fiscal consolidation in GCC and the tightening of US laws for cross-border transfers. Just to highlight, UAE-Pakistan and Saudi-Pakistan is among the lowest cost corridors in the world (as per 2015 data), therefore adverse economic conditions have profound impact on remittance inflows.

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