World Bank Sees Major Drop in Remittances to Pakistan Next Year

The World Bank has projected a drop in remittance flows to Pakistan to $24 billion in 2023 and a further drop below $22 billion with a 10 percent decline in 2024, 

Saying the growing economic turmoil sparked by a balance of payment crisis and high debt has led to a worsening loss of public confidence reflected in a diversion of remittances from formal to informal channels.

The Bank in its latest report “Leveraging Diaspora Finances for Private Capital Mobilization” stated that in Pakistan, low expectations of a return of positive economic growth as the International Monetary Fund (IMF)-the supported program takes effect, are likely to weigh on public confidence, leading remittances to decline by 10 percent and drop below $22 billion in 2024.

Formal remittance flows plummeted by 20 percent in 2023 on top of a decline of 5 percent in 2022. Remittance flows in 2023 are expected to drop to $24 billion”, the Bank added.

The report further stated that 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.

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.

Despite strong employment of foreign workers in Saudi Arabia, given a push for giga-projects, outward remittances from there to destination countries were down by 13 percent in the first half of 2023 compared with a year earlier.

The decline likely reflects post-COVID adjustments, as well as Saudi Arabia’s recent policy allowing foreign migrant workers to bring their families to the country when they work, possibly resulting in fewer remittances back home. This could have negative implications for remittance flows to Pakistan and most North African countries.

The report further stated that Pakistan, Bangladesh, Sri Lanka, and Nigeria had offered a small payment, either a fixed amount or a percentage (for large transactions), to intermediary banks to offset money transfer costs paid by remitters.

According to one study, the Pakistan Remittance Initiative was associated with a 13 percent increase in formal remittance flows. Such incentives have little impact, however, in countries with large differences between parallel and official exchange rates.