According to the SBP data, remittances in March 2020 clocked in at US$1.89bn, showing a healthy growth of 9% yoy and 4% mom. This is in line with the monthly run rate of US$1.89bn in FY20 so far; even though many countries, including Pakistan, observed a nationwide lockdown at the end of March.
Among the four major contributors of remittances to Pakistan – Saudi Arabia, UAE, USA and UK – trends in March were largely in line with the previous eight months. Flows from the USA have grown at 30% yoy (17% yoy during 9MFY20). For the third consecutive month, flows from the UK have been slowing with an unusual yoy decline in March. About 11% yoy growth in flows from both Saudi Arabia and UAE (accelerated mom) may indicate that Pakistanis abroad may have started sending money for the upcoming Ramadan / Eid season (falling in April-May).
We think flows in April will partly show the negative impact of the Covid-19 pandemic and lockdowns in many countries. The major decline could be seen in flows from the USA and Europe (the epicentres of the outbreak), while there could be a relatively moderate decline in flows from the Middle East – where the dent from lower oil prices and negligible tourism would be compensated for by the Ramadan / Eid related flows, in our view. The latter factor would likely keep flows in May healthy (last May, remittances grew 31% yoy due to the same reason).
In 9MFY20, remittances have grown by a healthy 6% yoy to US$17.02bn. Flows from USA grew the most, by 17% yoy, while there was a 5-6% growth in flows from other major countries.
Given the Goods trade balance in March came in at US$1.49bn (PBS; same as in February 2020), and remittances are up 4% mom, the current account deficit will likely be similar to the level in February (US$210mn). A potentially sharp decline in remittances and exports in April (say, lower by US$500mn each) will partly be offset by near-halving of oil imports (c.US$500mn) and decline in other commodities, in our view.