Spearhead Analysis – 13.08.2018

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

On the heels of the 2018 election and the prospects of the formation of a PTI led Government, there has been an apparent boost to the much needed Overseas Workers Remittances during the month of July 2018. A 25 per cent increase to US$1.93 Billion in July 2018, over the US$1.54 Billion received in July 2017. While this is an encouraging sign, one month does not portray a long-term trend and before one starts extrapolating this rise to the FY2019 numbers, it is important to keep in mind that there is a pre-Eid seasonal rise in Remittances as overseas Pakistanis send in additional money to their families for the expenses. Eid in 2018 falls in August and there has been that corresponding rise in remittances in the month preceding Eid. On a comparative basis in 2017 Eid fell in September and the corresponding August 2017 remittance figure was US$1.95 Billion, higher than the pre-Eid amount in 2018.

The month of July 2018 could be a one-off blip as the devaluation, overseas political funding for elections, and Eid would have come into play and positively impacted the inflow of funds. It is therefore important to observe whether the rising trend would be maintained in the coming months. During FY2018 there were a number of instances when a one-month rise in remittance, was followed by sharp declines in the subsequent months. The fact is that over the past three fiscal years Overseas Workers’ Remittances have ranged between US$19.3 Billion to US$19.9 Billion, with the FY2018 remittances at the US$19.6 Billion level. The July 2018 surge in remittances can be explained by a number of factors:

  1. The rupee has continued to shed value since December 2017 and in July 2018 there was a 5 per cent plus depreciation in the value of the Rupee a week before the elections. In addition, the deadline for the Amnesty Scheme was July 31, 2018 and there is a strong possibility that people holding funds overseas, which they did not declare under the Amnesty scheme, routed these through the remittance channel.
  2. There is considerable overseas support for the main political parties, and their overseas wings would have been active in garnering support, financial and otherwise, and remitting those funds for the financial support of their respective parties and candidates, which could have contributed to the rise in Remittances in July 2018.
  3. On top of these factors there was the usual pre-Eid rise in Remittances as with Eid falling in the third week of August the remittances were positively impacted in July.

The incumbent Finance Minister Mr. Asad Umar has stated that there would be a focus on growing Overseas Workers’ Remittances to supplement the fast depleting foreign exchange reserves. Perhaps, there will be additional incentives or products on offer for overseas Pakistanis, which would encourage them to remit home higher amounts of money. The fact that Pakistan has been placed on the Financial Action Task Force (FATF) Grey List, implies that funds being remitted to Pakistan are under heightened scrutiny and transactions over the basic limit are red-flagged for review. This is something that the Government needs to address on a priority basis to facilitate the genuine transfer of funds into Pakistan.  

It is important to review the inflow of remittances for the past three years to understand the trends for the incoming funds. August 2017 has been inserted in the table as it was a pre-Eid month in 2017 and offers a more realistic comparison with the pre-Eid month of 2018.



A review of the past three years shows that for the month of July the following trends were apparent:

  • Remittances from USA and UK have maintained an upward trajectory.
  • There is a sharp decline in Remittances from Saudi Arabia and the GCC countries.
  • Remittances from UAE and EU are mainly stagnant, while remittances from other countries have risen in July 2018.

On a fiscal year basis, the trends are provided in the following table and graph:



  • Remittances from USA and UK are rising and were 28 per cent of the total remittances in FY2018.
  • Remittances from Saudi Arabia and GCC are declining and were 36 per cent of the total remittances in FY2018.
  • Remittances from UAE are stagnant and were 22 per cent of the total remittances in FY2018.
  • Remittances from EU and Others are rising and were 14 per cent of the total remittances in FY2018.

There are clear trends that the portion of remittances from Saudi Arabia and GCC are declining, while UAE is stagnant. It is the Western countries such as USA, UK and Others which are contributing a rising portion of the Remittances. With deterioration in relations with countries such as USA and Canada, Pakistan could potentially impact the remittances from these countries.  While there is potentially an expectation that the remittances in August could remain robust with Eid in August, it remains to be seen whether the incoming Government will be able to capitalize on the July momentum and put in place mechanisms and strategies to facilitate a continued rise in Remittances. It is imperative to remove bottle-necks such as the FATF Grey Listing and jump start the investment in the country by improving the business climate, infusing confidence and building up the required infrastructure.