ISLAMABAD: Remittances are expected to drop by 7.4 percent to $29 billion in 2022 from $31 billion in 2021, as loss of confidence contributed to migrants’ preference for the parallel exchange market and informal channels of money transfer, which further decreased official remittance flows to the country, says the World Bank.

The bank in its latest report, “Remittances Brave Global Headwinds Special Focus: Climate Migration”, noted that while remittances exceeded pre-pandemic levels they fell compared to 2021, exacerbating a balance of payments crisis.

It further stated that Pakistan’s currency depreciated by 36 per cent against the dollar between January and September 2022, and 14 per cent against its trading partner currencies between January and July 2022. As inflation raged and a balance of payments crisis seemed imminent, the government sought financial assistance from the IMF to stabilise the exchange rate.

The bank further stated that loss of confidence contributed to migrants’ preference for the parallel exchange market and informal channels of money transfer, which further decreased official remittance flows to Pakistan. The record devastation wrought by the floods in Pakistan offered the ideal incentive for migrants to boost official remittance flows in 2022, especially because the destination market conditions in the GCC were highly favourable. Yet, unlike the experience of the pandemic when informal channels had collapsed, in 2022 they were prolific. Pakistani migrants seem to prefer informal over formal remittance channels in assisting their families at home.

The report further noted that remittance flows to South Asia are expected to grow 3.5 per cent to reach $163 billion in 2022, a notable slowdown from the 6.7 per cent gain of 2021, but benefiting from strong performance in India and Nepal. India’s remittances are expected to reach a milestone $100 billion in 2022. The easing of remittance returns reflects the discontinuation of the special incentives some regional governments had introduced to attract flows during the pandemic, as well as a deterioration of domestic conditions in some source countries (Bangladesh, Pakistan, and Sri Lanka).

As a share of GDP, remittances in 2022 are projected to rise to 22 per cent in Nepal, and to range from 8 per cent in Pakistan to 4–5 per cent in Bangladesh and Sri Lanka. Despite reaching a historic milestone at $100 billion and retaining its position as the top recipient of remittances globally, India’s remittance flows are expected to account for only 3 per cent of its GDP in 2022.

Remittances to Bangladesh, Pakistan, and Sri Lanka are expected to decline in 2022 as domestic and external shocks hit these countries simultaneously. Demand for migrant workers remains strong in GCC countries, the predominant destination for these countries’ migrants. However, migrants responded to exchange rate depreciations in home countries by sending less money through formal channels and opting for black-market premia in the parallel exchange markets. They saved remittance fees by using more informal than formal money transfer channels. These forces will have varying effects on remittances to home countries. Remittances to India are forecast to rise by 4 per cent, supported by the large share of Indian migrants earning relatively high salaries in the United States, United Kingdom and East Asia (whose remittances may be more resilient than those of lower-wage migrants, for example in the GCC).

In Sri Lanka, the recent improvement in the political situation and the implementation of an IMF program should boost confidence in the banking system, leading to a small upturn in officially recorded remittances, expected to grow 2.8 per cent to $3.7 billion. By contrast, the growing preference for informal remittances channels is expected to contribute to the 7 per cent decline in remittance flows to Bangladesh and the 3.4 per cent fall in flows to Pakistan. Remittances to Nepal are projected to decline by 5 per cent with the conclusion of construction projects related to the World Cup.

In 2019, about 50 per cent of emigrants from Pakistan and 42 per cent from Bangladesh were in GCC countries. Saudi Arabia employed more than 25 per cent of Sri Lankan emigrants and 20 per cent of Nepali emigrants. Every year 400,000 Nepalis leave for Kuwait, Saudi Arabia, and the United Arab Emirates. Since 2010, every fourth Nepali leaves for Qatar. In East Asia, Malaysia and Thailand are emerging as popular destinations for South Asian low-skilled migrants.

Migrants’ increased preference for informal over formal currency exchange and money transfer channels also depresses official remittance flows. Remittance flows to India were enhanced by the wage hikes and a strong labor market in the United States and other OECD countries.

According to UNHCR, Türkiye hosted nearly 3.8 million refugees, the largest population worldwide, followed by Uganda (1.5 million), Pakistan (1.5 million), and Germany (1.3 million). Colombia hosted 1.8 million Venezuelans displaced abroad.

In Pakistan, about eight million people were displaced due to the recent massive flood. Afghan refugees living in Pakistan have also been severely affected by the floods. In Bangladesh, Pakistan, and Sri Lanka, the joint effect of parallel exchange markets prompted by domestic economic crises, and re-emergence of informal money transfer channels in the aftermath of the pandemic, further diminished official remittance flows.—TAHIR AMIN