Remittances in July 2020 clocked in at US$2.76bn (an all-time high), up 36% yoy, beating the record set only in the previous month (up 12% mom). This again defies World Bank prediction of at least 20% yoy decline in remittances globally during 2020 (in Pakistan, weakness only seen during May, down 19% yoy).

Key factors behind the strength in remittances include:

§ The SBP attributes the reducing of threshold, to avoid fees for small remitters, from US$200 to US$100.

§ Authorities aggressively promoting routing of remittances through digital channels, including targeted crackdown on informal channels.

§ Note that air travel is still below pre-pandemic levels and thus restricting money flow through informal channels.

§ The concentration on July flows from the GCC could also point to laid-off blue workers returning to Pakistan with their savings.

Unlike in June, much of the improvement was seen in GCC countries – flows from Saudi Arabia (up 74% yoy) and UAE (up 26% yoy) – UK (up 32% yoy) and the EU (quadrupled yoy). Flows from the US, however, fell 22% yoy. Since many Pakistani have good presence in the GCC, they were able to route most of the money through digital channels, as other avenues dried up amid the pandemic. We think this warrants a revision in outlook for remittances during FY21, where the likely decline could be much less than 10% yoy.

The strong remittances will be complemented by a trade deficit of US$1.64bn (down 24% yoy) because of a rebound in Textile exports (likely above US$1.0bn, a pre-pandemic level). This implies another month of current account surplus (since February 2020 C/A deficit has averaged only US$98mn per month including nearly two months of C/A surplus). Note that our estimate of CAD in FY21f of US$4.0bn (c1.4% of GDP) implies a monthly average of US$330mn. (IMS Research)