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28 March 2024

Remittances swell as dirham surges 45%

Published
By Vicky Kapur

UAE expatriates, especially from the subcontinent and Europe, seem to be having a good global slowdown, with their home currencies plunging by as much as 45 per cent against the UAE dirham in the past four years, cushioning the rise in cost of living within the country and boosting remittances.

While the Pakistani rupee (PKR), which hit an all-time low last week, is now down more than 45 per cent since the beginning of 2008, the Indian rupee (INR) is down by more than 33 per cent, the British pound is down more than a quarter, the Bangladeshi taka is down more than 12 per cent, the euro is down almost 9 per cent and the Philippines peso is down 5 per cent in the same period.

This has led to record remittances being sent by overseas workers, especially to developing countries. “The depreciation of the currencies of some large receiving countries created incentives to send remittances to take advantage of the ‘sale effect’ on local currency assets,” the World Bank has said in its latest report on remittances.

“After several years of appreciation, the sharp depreciation of the currencies of some major recipients relative to the US dollar – and the currencies in remittance source countries in the GCC that are linked to the dollar – in recent months is creating a ‘sale effect’ in the assets of the countries of origin,” it pointed out. “The higher purchasing power of each dollar of remittances may increase the incentive to remit, to take advantage of the higher purchasing power in the home country,” the report said.

Importantly, the six GCC countries account for $48 billion, or more than half (53 per cent), of South Asia’s remittances, which are estimated to reach $90 billion in 2011 (up from $82 billion in 2010), according to the same report. The GCC also accounts for more than a quarter (28 per cent) of all remittances received by the Middle East and North Africa region, estimated at $36 billion for 2011 (up from $35 billion in 2010).

“Oil-driven economic activities and increased spending on infrastructure development are making [GCC and Russia] attractive for migrants from developing countries,” the report said. “Remittances from the GCC countries to Bangladesh and Pakistan (where the GCC countries account for 60 per cent or more of overall remittance inflows) grew by 8 and 31 per cent respectively in the first three quarters of 2011 on a year-on-year basis,” it added.

“Flows from the high-income countries in the Middle East to the Philippines also grew by nearly 8 per cent during this period,” it noted.

The PKR hit an all-time low of 24.35 against the dollar-backed UAE dirham last week, fuelling a surge in remittances from nationals of the south Asian country residing in the UAE and elsewhere in the Gulf and across the world.

The Pakistani rupee has lost almost half its value in the past four years, and is now down more than 45 per cent since the beginning of 2008, when it was trading at PKR16.75 against one UAE dirham on January 1, 2008. The PKR ended last week’s session at PKR24.32 versus Dh1, up more than 6 per cent in six months on dollar’s strength against a basket of global currencies, including the euro and British pound.

Meanwhile, the Indian rupee (INR) has lost about a third of its value against the UAE dirham since 2008, when it traded at INR10.72 against Dh1 on January 1, 2008. The Indian rupee too hit lifetime lows last week, and is currently trading at INR13.90 versus Dh1, up 16 per cent in the past four months.

“The Indian rupee steadily appreciated (by about 15 per cent) against the US dollar between November 2008 and June 2011, but had more than reversed the gains by November. Anecdotal reports from money transfer companies suggest that remittances from the GCC countries surged in the third and fourth quarters of 2011 because of the weak rupee,” the World Bank report said.

The British pound, on the other hand, has lost more than a quarter of its value (27.35 per cent) since the beginning of 2008, and is up 7 per cent in the last seven months, trading at £0.1745 against Dh1 (£1 = Dh5.73).

Although the Philippines peso has gained a modest 5 per cent since 2008, remittances have been on an upward trajectory thanks to a growth in the number of Filipino workers employed outside the country. “In the Philippines, remittance inflows grew steadily by over 7 per cent during the first three-quarters of 2011. This is largely because demand for overseas Filipino workers (OFWs) has remained remarkably stable,” World Bank said.

“While deployment of land-based OFWs to the Americas and Europe declined by 12 per cent between 2008 and 2010, this was more than offset by an increase in deployments to the Middle East (8 per cent increase, mainly to Saudi Arabia and the UAE), Asian countries (28 per cent increase) and Africa (53 per cent increase),” it noted.

“Among Asian countries, Hong Kong and Singapore have seen large increases in OFW deployments. The deployment of seafarers, who account for one-quarter of overall OFW deployments, increased by about 33 per cent between 2008 and 2010 and is expected to increase by a further 15 per cent in 2011,” it said.

 

Global Remittances surge

The rise in the dollar’s strength has led to a massive surge in remittances to developing countries this year. In its report, the World Bank maintains that officially recorded remittance flows to developing countries are expected to reach an estimated $351 billion in 2011, up 8 per cent over last year, and 14 per cent over the year before.

“The depreciation of the currencies of some large receiving countries (including Mexico, India and Bangladesh) created incentives to send remittances to take advantage of the ‘sale effect’ on local currency assets,” the WB report said.

“For the first time since the global financial crisis, remittance flows to all six developing regions rose in 2011,” the report added. Remittances to developing nations declined from $324 billion in 2008 to $307 billion in 2009 due to the impact of the global recession and liquidity crunch.

“Following this rebound in 2011, the growth of remittance flows to developing countries is expected to continue at a rate of 7-8 per cent annually to reach $441 billion by 2014,” the report said. “Worldwide remittance flows, including those to high-income countries, are expected to exceed $590 billion by 2014,” it added.

With 2011 remittances estimated at $58 billion by non-resident Indians (NRIs) across the world, India emerged as the largest recipient of foreign remittances, followed by China ($57bn), Mexico ($24bn), and the Philippines ($23bn).

“Flows to countries in Asia were buoyed by high oil prices and increase in remittance outflows from Russia to Central Asia and from the Gulf Cooperation Council (GCC) countries to South and East Asia,” World Bank said.

“Other large recipients in US dollar terms include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon,” the report said. “However, small and low-income countries such as Tajikistan, Lesotho, Nepal, Samoa and Tonga tend to receive more remittances as a share of their GDP,” it added.

High oil prices, which have hovered over $100 a barrel in recent months, continue to provide a much-needed cushion for migrant employment in, and remittance flows from, the GCC and Russia, the report said.

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