Pakistan to experience a decline in remittances: World Bank
Business
Says exchange rate differential means flow is diverted from formal to informal channels
WASHINGTON (Web Desk) – The growing economic turmoil sparked by a balance of payment crisis and high debt have led to a worsening loss of public confidence reflected in a diversion of remittances from formal to informal channels, says the World Bank.
“Formal remittance flows plummeted by 20 per cent in 2023 on top of a decline of 5 per cent in 2022. Remittance flows in 2023 are expected to drop to $24 billion,” reads “Leveraging Diaspora Finances for Private Capital Mobilization” – a latest report published by the Washington-based institution.
It also talks about the currency devaluation effects, saying the rupee depreciated sharply between early 2022 and early 2023, and the government’s attempts to limit capital outflows through import and capital controls diverted remittance inflows from formal channels, contributing to shortages of foreign currency.
About the future prospects, the World Bank notes, “In Pakistan, low expectations of a return of positive economic growth, as the IMF-supported programme takes effect, are likely to weigh on public confidence, leading remittances to decline by 10 per cent and drop below $22 billion in 2024.”
The report goes on to discuss the resultant booming black market in countries like Pakistan.
“Depreciation and exchange rate management policies have led migrants in Bangladesh, Pakistan, and Sri Lanka to take advantage of the black-market premia and transfer funds through informal and formal channels.”
According to the World Bank, the Philippines has raised bond financing from its overseas foreign workers, and Pakistan has a diaspora savings certificate now under issuance. However, the amount raised by developing countries via diaspora bonds so far has been minuscule compared to the volume of remittance inflows. There remains enormous potential to tap diaspora savings.
When it comes to the overall state of affairs in South Asia, the report says, “At almost $189 billion in 2023, remittance flows to South Asia once again are likely to exceed expectations, outstripping previous forecasts in Migration Development Brief 38 by $13 billion.”
“As in 2022, this remarkable increase is attributable entirely to remittance flows to India, which are expected to beat previous forecasts by $14 billion and reach $125 billion in 2023. After growing at 12.2 per cent in 2022, growth in remittances to South Asia is likely to decelerate to 7.2 per cent in 2023.”
However, the growth in South Asia is thanks to Bangladesh, India, Nepal, and Sri Lanka, as Afghanistan, Bhutan, Maldives, and Pakistan witnessed a decline.
“The key drivers of remittance growth in 2023 are a historically tight labour market in the United States, high employment growth in Europe reflecting extensive leveraging of worker retention programmes, and a dampening of inflation in high-income countries.”
But the slackening in remittance growth relative to 2022 is attributable to a near collapse in growth in 2023 in Saudi Arabia and Kuwait, and the halving of growth in the remaining GCC countries triggered by the drop in oil prices and production cuts by the OPEC+ countries.
