KARACHI: As remittances sent home by migrant workers to South Asia are expected to sharply decrease amid the global economic slowdown caused by the COVID-19 pandemic, Pakistani experts say investment in vital sectors at home will decline, causing huge unemployment.
Global remittances are projected to decline by about 20 percent this year from $714.2 billion in 2019, the World Bank said in a statement on Wednesday. Remittances to South Asia are forecast to drop by 22 percent to $109 billion.
The projected fall is largely due to job and wage losses of migrant workers in host countries and will deal a heavy blow to economies in the developing world.
The International Monetary Fund (IMF) estimates that Pakistan’s remittance will drop by over $5 billion during the fiscal year 2020 and 2021, as activity in Gulf countries decreases.
Saudi Arabia and the United Arab Emirates are the main hosts for overseas Pakistani workers and largest sources of Pakistan’s remittances.
“The decline in remittance projected by different sources after the COVID-19 outbreak, world recession and depression greater than that of 1930, would badly hit Pakistan’s economy, which was already sluggish in the pre-coronavirus period,” senior economist Dr. Ikram Ul Haq told Arab News.
“It will squeeze investment in the real estate, housing and construction sector that have been playing a vital role for demand in over 40-plus industries and creating huge employment,” he said.
Pakistan Institute of Development Economics (PIDE) projects that the remittances will decline by 9 percent to 14 percent from the projected target of $23.8 billion in the fiscal year 2020 and will range between $14.13 billion and $22.54 billion in FY21 against projected inflows of $26.4 billion.
“In the coming days, if remittances decline drastically, as projected, it is going to be negative in two ways: by forcing the government to borrow more externally to keep foreign exchange reserves and by lowering investment in vital areas of the economy, which will decrease GDP growth more than estimated,” Dr. Haq said.
While according to the IMF, the COVID-19 shock will affect Pakistan’s balance of payment, some economists argue that it will be largely compensated by a decline in global oil prices and imports.
“The decline in imports will be more than any likely dip in exports and remittances,” senior economist Muzamil Aslam told Arab News. “This implies that the balance of payment situation will not be too drastic in the post COVID-19 days,” he argued.
On Thursday Pakistan’s central bank said that the current account deficit had improved by 74 percent from $10.3 billion to $2.8 billion due to declining imports in the July-March 2020 period.