World Bank Predicts Decrease in Remittances for Pakistan
The escalating economic turmoil triggered by a balance of payment crisis and soaring debt levels has resulted in a deepening erosion of public confidence, manifested by a shift in remittances from formal to informal channels, according to a report from the World Bank.
The report states, “In 2023, formal remittance flows experienced a staggering 20% decline, compounding the previous year’s 5% decrease. Projections for 2023 anticipate remittance flows to plummet to $24 billion,” as detailed in the recently released report titled “Harnessing Diaspora Finances for Private Capital Mobilization” by the Washington-based institution.
The document also delves into the repercussions of currency devaluation, highlighting a sharp depreciation of the rupee from early 2022 to early 2023. Government efforts to curtail capital outflows through import and capital controls redirected remittance inflows away from formal channels, contributing to shortages in foreign currency.
Regarding future outlooks, the World Bank warns, “In Pakistan, pessimistic expectations regarding the return of positive economic growth, coupled with the implementation of the IMF-supported program, are anticipated to undermine public confidence, leading to a projected 10% decline in remittances, falling below $22 billion in 2024.”
The report further addresses the emergence of a thriving black market in countries like Pakistan.
“Depreciation and exchange rate management policies have prompted migrants in Bangladesh, Pakistan, and Sri Lanka to exploit black-market premiums, channeling funds through both informal and formal channels.”
While the World Bank acknowledges that the Philippines has successfully raised bond financing from overseas foreign workers, and Pakistan has introduced a diaspora savings certificate, the funds generated through diaspora bonds in developing countries remain minimal compared to the volume of remittance inflows. There is still significant untapped potential in leveraging diaspora savings.
Examining the broader landscape in South Asia, the report observes, “Remittance flows to South Asia are set to surpass expectations, reaching almost $189 billion in 2023, surpassing previous forecasts in Migration Development Brief 38 by $13 billion.”
“As in 2022, this notable increase is solely attributable to remittance flows to India, projected to exceed previous forecasts by $14 billion and reach $125 billion in 2023. Following a 12.2% growth in 2022, remittance growth in South Asia is anticipated to decelerate to 7.2% in 2023.”
However, the growth in South Asia is propelled by countries such as Bangladesh, India, Nepal, and Sri Lanka, while Afghanistan, Bhutan, Maldives, and Pakistan experience a decline.
“The primary drivers of remittance growth in 2023 include a historically tight labor market in the United States, substantial employment growth in Europe due to extensive worker retention programs, and a moderation of inflation in high-income countries.”
