For expat Pakistanis, sending remittances is becoming easier than ever

It’s been a good year for remittances in Pakistan. The amount sent home by overseas Pakistanis throughout the fiscal year 2020-21 marked the fastest pace of growth in 19 years reaching an all-time high since FY 2003 to reach $29.4 billion on a cumulative basis. This means remittances grew by 27% over the previous year.

It is strange, however, that Pakistan was able to not only maintain but ramp up remittances during a pandemic withstanding a manpower export slump. The reasons behind this rise in remittances has been done to death. Many publications, including this one, have spent some time writing about the reasons for the rise. To sum it up briefly, some Pakistanis lost their jobs and were sending back money so they could relocate to Pakistan and some sent more money to support their families that were facing tough financial circumstances during the pandemic. In addition to that, hawala hundi wasn’t as convenient an option as it was in the past due to stricter controls and a reduction in international traveling. Moreover, the State Bank of Pakistan timely stepped up and allowed remittances to be sent through Roshan Digital Accounts. 

Why did remittances rise? 

Globally, there are 270 million people that work away from their home countries and send money back to the motherland. For a lot of developing countries, remittances have become a vital source of financing for many developing countries. 

And as a recent NPR report has shown, the sums of money are huge. In fact, the amount of money sent in remittances is greater than the sum of all investments made by foreign companies in developing countries combined. And it is more than triple the amount of aid that governments provide those countries.

Here’s how remittances work. Migrants working abroad send money to their families in their countries of birth. It sounds simple enough, and nearly a very micro-economic, domestic activity. But with 270 million migrants sending remittances globally, according to the earlier mentioned NPR report, in 2019, remittances hit an all-time high of over $550 billion. Essentially, countries where people immigrate to were doing better and the countries they immigrate from not so much, causing this uptick. Then, came the pandemic, which instead of bringing remittances down, shot them up.

When the coronavirus pandemic hit and triggered a global recession, it was being dubbed as the worst economic downturn since The Great Depression of 1929. With such bleak prospects, unemployment on a massive rise, industry coming to a halt, and general uncertainty, the World Bank predicted that global remittances would shrink by more than 20%. But that hasn’t happened. Recent data shows that remittances have held steady and in some cases, even gone up. One of those cases has been Pakistan. 

In the July-September quarter of the financial year 2018-19, the total remittances coming into Pakistan were $5.54 billion. The following year, in the July-September quarter of 2019-20, the total remittances were $5.45 billion, indicating a slight fall in this quarter even though overall remittances increased by nearly $2 billion for the year, as mentioned earlier. However, the July-September quarter for the current financial year of 2020-21 has risen significantly to $7.15 billion.

Initially, this increase confused analysts, and most chalked it up to the upcoming Eid-ul-Adha holidays. However, they continued to rise. But generally, when things are bad at home, that is when migrants send back the most money, and corona has definitely hit the home countries badly economically, including Pakistan. This is the sort of explanation that the federal government would want to give.

Will it keep up? 

Many analysts have commented on this being a one-time thing or the pace of growth to decelerate at some point. However, it seems like the government and the State Bank of Pakistan are doing everything they possibly can to ramp up remittances and inflows of precious foreign currency.

If you’ve been a reader of this magazine this is probably not the first time you’ve read a story where we’ve pointed out the benefits non-resident Pakistanis get. We’re back again with a new story about another scheme that helps non-resident Pakistanis. Earlier this week, the Economic Coordination Committee of the cabinet approved the National Remittance Loyalty Programme (NRLP) in order to incentivize the inflows of remittances.

The scheme is simple. You are now incentivized and rewarded based on how much you send back home to Pakistan. Think of this like a credit card where you get points based on how much you spend. Sometimes individuals choose to buy on their credit cards specifically for the points. Through the NRLP, what the SBP Is trying to do is encourage individuals to send money back to Pakistan through the right channels and be rewarded for doing so.

Points will accumulate. If you send $10,000 in a year your reward will be 1%. On the next $30,000 per annum, the reward is 1.25% and 1.5% on the next $30,000. One reward point is equal to Rs 1. In addition to this, banks have spent money on developing a mobile application run and developed by 1-Link. The app will be in English and Urdu and will be for both android and ios.

The NLRP also provides other features. You could be classified as Green, Gold and Platinum based on your usage of the facility. A virtual Loyalty card will also be provided in the app. Moreover, you can have supplementary user cards too. Any money sent home through formal channels is eligible for the loyalty program, this includes funds received through RDA and spent in Pakistan. This means if you’re using RDA for schemes such as Roshan Apni car, you’re not only getting a cheaper deal than locals but you’re also going to be getting loyalty points for it.

The estimated financial impact that has been budgeted is based on the assumption that remitters equivalent to 25% of the remittances as of FY 21 will register for NRLP, is Rs. 13.107 billion for FY22.

So how can you redeem points?

Well this is kind of underwhelming because you don’t have the same kind of catalogue you do with bank cards. Instead you can get PIA tickets, pay for extra baggage on your international flights, pay for taxes applicable on bringing mobile phones to Pakistan, and pay your vehicle taxes which include tax while buying a local car or duties while importing a car. You could also use your accumulated points to pay for your CNIC/NICOP or passport renewal. School fees, utility store purchases, and insurance premiums can also be paid through these.

What does this all mean?

In July remittances increased by 0.7% compared to June 2021, however declined by 2.1% on a yearly basis because of seasonal variation and Eid holidays and fewer working days. Despite that, what is abundantly clear by the SBP’s steps as of the past year and a half- the government is looking towards remittances to keep the rupee stable and manage its reserves. The government and SBP have been coming up with schemes to promote more money coming into the country from expats through investment and consumption. Through this loyalty program, it’s incentivizing just about all money pouring in. The question is, whether this remittance craze is fair on the locals considering their taxes pay for interest payments made to NPCs and of course these loyalty points.