COVID-19: Declining Remittances, Repatriation, Unemployment and a possible Silver Lining

by S. Mushfiq Murshed

Facts & Forecasts

Foreign remittances sent by overseas Pakistani’s had grown, over the years (“at an annual rate of nearly 9%” since 2012 – Moody’s), to become one of the country’s economic lifelines.

In the last fiscal year (2018/19) Pakistan received $21.841 billion¹ in foreign remittances from overseas Pakistanis, whereas the total exports were $22.979 billion for the same fiscal year.² Over 75% of the $21.841 billion originated from Pakistani workers in four countries. They were as follows: Saudi Arabia $5 billion, UAE $4.619 billion, UK $3.411billion and USA $3.409 billion.³ In addition, Pakistanis working in other Gulf Cooperation Council (GCC) countries remitted $2.119 billion in FY19.⁴

After the State Bank of Pakistan announced that foreign remittances in the first 8 months of the current fiscal year had reached $15.126 billion⁵, the government forecasted that the number would exceed $22billion by the end of FY20.⁶ Prime Minister Imran Khan was confident that foreign remittances could eventually exceed $40 billion within a few years.

Over the years the socio-economic benefits derived from these remittances have included: poverty alleviation, increase in household consumption, access to health and education services, rural investment, etc. In addition, the increased inflow of foreign remittances – along with a lower import bill – has helped Pakistan in reducing its current account deficit from $19.897 billion in fiscal year 2017/18 (foreign remittances for the same year were $19.9 billion) to $13.587 billion in fiscal year 2018/19 (foreign remittances had increased to $21.841 billion by the end of the same fiscal year).

With the outbreak of COVID-19, however, most of the world is in either partial or complete lockdown, economic growth/activity has come to a grinding halt and global recession is imminent.

The International Monetary Fund (IMF), in its April 2020 World Economic Output report, has forecasted that Pakistan’s real gross domestic product (GDP) growth rate will decline (due to the COVID-19 outbreak) by -1.5% in 2020. In addition, the country’s unemployment rate has been projected at 4.5% for the current year and 5.1% for the following year.

The report’s real GDP growth rate forecasts for GCC are bleaker: Saudi Arabia -2.3%, UAE -3.5%, Qatar -4.3%, Oman -2.8%, Bahrain -3.6% and Kuwait -1.1%. Furthermore, the growth rates forecasted for the US and UK were -5.4% and -5.3%, respectively.⁷

Within 6 weeks the total number of initial unemployment claims (due to the virus) in the US had risen to 30.3 million.⁸ In addition, the economies of Arab gulf oil exporters are being hit hard by record low oil prices, initially, due to a price war for higher market shares and followed by a drastic decline in demand due to the COVID-19 pandemic.

As a result, Saudi Arabia is planning on cutting “spending by 5%, or about $13.3 billion”⁹, thereby, putting a dent in its 2030 vision. Furthermore, Dubai’s expo 2020, Qatar’s Club World Cup 2020 followed by the FIFA World Cup 2022 – all considered as turning points for these economies – are in jeopardy.

Declining Remittances, Unemployment & Repatriation

In the context of Pakistan, the ramifications of the above-mentioned facts and forecasts will only exacerbate the multi-layered challenges that the country has been facing ever since the outbreak of the virus. For instance, according to a World Bank “Migration and Development Brief” (April 2020) remittances to Pakistan are likely to decline by 23% in 2020.¹⁰

In addition, the economic setback brought about by reduced remittances will be compounded by the repatriation of that portion of the workforce that is unemployed and has become redundant for the host country due to the COVID-19 induced recession.

According to some estimates there are over 10 million overseas Pakistanis. The burden on the state would be immense if even a single-digit percentage of the 10 million were forced to repatriate. As it is, the Pakistan Institute of Development Economics (PIDE) has estimated that potential layoffs among the “vulnerably employed” in the country could range from 1.39 million to above 18 million, depending on the level of lockdown.¹¹

This situation demands that the ostrich like approach hitherto adopted needs to be reversed. The number of infected in Pakistan is a prime example of this approach that has duped the masses into a false sense of security. There is a certain narrative suggesting that Pakistan has been successful in its strategies to fight the virus because the number of COVID-19 infected patients in the country has remained low (as of May 6, 2020 – 22,550 ¹²) and this has proved the forecasts of over 100,000 infected in the country as incorrect. This narrative, however, chooses not to mention that only 232,584 tests ¹³ have been conducted to-date for a population of over 220 million.

Hiding behind misleading statistics is no longer an option when the lives and livelihood of millions are in dire straits. It is, therefore, suggested that the plight of the returning overseas labourers be given weightage in policy development and implementation as this responsibility rests with the state.

The Ministry of Overseas Pakistanis & Human Resource Development (OP & HRD) needs to further streamline their coordination and efforts with the Ministry of Foreign Affairs. The Ministry of Foreign Affairs, in turn, must be proactive. Its embassies need to monitor the condition of Pakistan’s labour force working abroad and, whenever and wherever required, engage with relevant local authorities of the host countries to address grievances.

Numerous reports and articles have verified the deplorable condition that many of the overseas labourers have been exposed to after the outbreak of COVID-19. Economic losses incurred by many employers have been passed down to the labourers ¹⁴ through reduction of wages. As a result, the financial burdens of overseas workers (many already in debt to “recruiters and middlemen”¹⁵) have been exacerbated. Furthering their misery is the living conditions in some labour camps where these workers are locked down in groups sharing rooms – an arrangement inconducive to social distancing and ripe for the spread of the contagion.

The embassies, while monitoring conditions, will also have the opportunity to prepare lists of overseas Pakistani workers that need to be repatriated, thereby, providing the necessary data to alert the relevant ministries in the country of the expected inflow.

The initial challenge in this repatriation process will be the screening of and, if necessary, quarantine for those returning. Recently passengers were flown to Karachi from Dubai, Sharjah and Colombo. Out of the 483 passengers 190 tested COVID-19 positive.¹⁶ In addition, 105 passengers out of 209 flown in from Abu Dhabi to Islamabad on April 28 also tested positive for the virus.¹⁷

Furthermore, OP&HRD needs to negotiate debt relief options with recruiters and middlemen of the labour force that is returning. Then comes the phase when the repatriated are merged with the country’s unemployed workforce. Their needs become one – employment.

The Silver Lining

External financing and debt relief coupled with a lower import bill due to falling oil prices have provided the much-needed space for the Government to announce a PKR 1.2 trillion relief package to counter the socio-economic challenges brought about by the contagion. This package includes the distribution of PKR 12,000 per family to approximately 12 million eligible vulnerable families. Furthermore, “the economic stimulus package contains a whole range of fiscal measures (tax breaks, financial support via utilities, fuel and transport subsidies, concessions and tax refunds) to protect exporters and businesspersons.¹⁸” The State bank has also lowered interest rates and softened regulations for the banking sector.

In addition, the semi-lockdown or – as the administration refers to it – smart lockdown has permitted some labour-intensive industries to reopen and incentives have been given in order to revive economic activity and provide employment for the more vulnerable.

As a result of the government’s efforts, Moody’s Investor Service has forecasted that Pakistan’s real GDP will decline only by 0.01% – 0.50% in 2020 as opposed to the earlier assessment by the IMF of -1.5%.

These measures have, therefore, shown results and been effective to a certain extent. This strategy, however, is relying on the age-old approach of providing lucrative financial incentives to the industrialists (or the rich) in the hope that these benefits would eventually trickle down to grass root levels.

The real opportunity or the silver lining does not lie here. A truly inclusive approach that could change the country’s long-term socio-economic dynamics should concentrate on the micro, small and medium enterprise sector. This has the potential of revitalizing the middle income/class through an egalitarian and community-based approach towards wealth distribution, poverty alleviation and job creation. A new and vibrant business environment could be developed whereby vocational training/skill development, rural development and youth entrepreneurship (60 to 65% of Pakistan’s population is under 30 years of age– adding an average of 1.4 million annually to the workforce) could be merged into an all-inclusive nationwide strategy.

Furthermore, the informal economy (an important part of this sector) that employed 70% to 75% of the country’s labour outside the agricultural sector has been hit badly due to the virus induced economic crisis. Financial assistance, bail out packages and tax and regulatory leniency could motivate this segment to merge into the formal economy – if for no other reason but to remain solvent.

It is an idealistic hope that such a strategy could be implemented in the country. This, however, requires cohesion between the provinces and the center. Furthermore, the most logical approach – to make this truly comprehensive – would be through the collaboration of union councils. Recent events suggest that both of these conditions are inconceivable within the current political environment.

For instance, recently COVID-19 provided another opportunity that the Government chose not to pursue. The Federal Government could have backed the provinces in a Union Council level approach to screening and monitoring. This initiative could have been the foundation for providing healthcare (even in its most basic form) to grass root levels in rural areas. Political agendas did not allow this to happen. In the end the citizens of this country were deprived, as always.

The virus has inadvertently brought to the forefront the pre-existing fragile socio-economic environment – lack of healthcare, high unemployment rate, mismanagement of youth bulge, poverty, growing disparity between the rich and poor, etc. – in Pakistan. Unfortunately, a unified nationwide strategy to overcome these weaknesses and address the challenges that the citizens of Pakistan have faced since the outbreak of the virus has been compromised by political agendas, bickering and point scoring.

It will take years for global economies to recalibrate to post-COVID-19 dynamics. Within this recalibration process, realities that we had grown accustomed to will morph. Let us hope that the Government of Pakistan comprehends these new dynamics and drops past failed options and strategies while creatively using the limited resources available to identify and embrace novel opportunities that will emerge to alleviate the plight of its citizens.

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