ISLAMABAD – Moody’s in its latest report on Pakistan has stated that theincrease in worker’s remittances is credit positive for Pakistani banksbecause it supports deposit flows and strengthens household finances.
On 12th February, the State Bank of Pakistan (SBP) had released updatedmonthly data on workers’ remittances showing a 4% increase in the monthlyaverage for fiscal 2020 (which ends 30 June) over 2019 levels.
This increase adds to a continued surge in remittance inflows in recentyears, noted Moody’s.
According to the World Bank, Pakistan was the seventh-largest recipient ofremittances (money transferred back home primarily by overseas migrantworkers) globally in 2018, with remittances inflows reaching $21 billion,or 6.8% of the country’s GDP.
During the fiscal 2012-19 period, remittances grew at a compounded annualrate of nearly 9%, with the majority of inflows arriving from GulfCooperation Council countries (54% of total remittances in 2019), the US(16%), the UK (16%) and Malaysia (7%).
In local currency, however, remittances have grown even more because thePakistani rupee has depreciated by more than 40% over this period, althoughthe US dollar/rupee exchange rate has experienced significantly lessvolatility since mid-2019.
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Moody’s maintained that the high levels of remittances have contributed toreported double-digit growth in residents’ household deposits. Such growthbenefits Pakistani banks by providing a stable and low-cost deposit base,which in turn enhances banks’ profitability and increases their liquiditybuffers.
The credit rating agency noted that the growth will also help mitigate theeffect of government deposit outflows from the potential introduction of aTreasury Single Account that will require government deposits to be placedwith the SBP instead.
Moody’s stated that increased remittances also support Pakistanihouseholds’ disposable income and borrowers’ repayment capacity, mitigatingthe challenges posed by high interest rates.
