NEW DELHI, Apr 13: Lower remittances from Gulf nations, which have been hit hard by the slump in oil prices, will cut the benefits of cheaper oil imports for several Asia Pacific countries including India, Moody’s Investors Service said today.
“Generally, weaker remittances will immediately impact the recipient countries’ credit profiles via their balance of payment positions. A prolonged fall would also hurt economic growth, given the importance of remittances to household incomes,” it said in a report.
Moody’s in a report titled ‘Sovereigns — Asia Pacific: Falling Remittances from the Gulf Dampen Benefits of Lower Oil Prices’ analyzes the potential credit implications of weaker remittances from their citizens working abroad for six Asian countries — Bangladesh, India, Pakistan, the Philippines, Sri Lanka and Vietnam.
For these six economies, remittances are equivalent to 3 to 10 per cent of GDP, and between 22 and 188 per cent of foreign reserves.
India gets 52.1 per cent of its remittances from the Gulf nations while the exposure of Pakistan to the region is the highest at 61.2 per cent of remittances. Bangladesh gets 54.8 per cent of its remittances from Gulf while Sri Lanka gets 50.9 per cent.
“As a percentage of GDP, remittance receipts are larger than net oil imports in all countries barring India, so changes in remittances will have a greater effect on the current account balance,” it said.
Moody’s said the 25 per cent drop in oil prices since the start of 2015 is large, and it expected that future declines in remittances will be much lower than that in percentage terms.
“So, unless remittances decrease significantly more in percentage terms than we anticipate, their decline will dampen, but not completely offset, the benefits of lower oil prices on the current account,” it said.
It estimated that it would take a 10 to 30 per cent fall in remittances to outweigh a 50 per cent drop in net oil imports for most countries.
“Given its larger net oil import bill, India is an exception, and can thus withstand a much greater fall in remittances,” it said.
While the beneficial effects of a lower oil bill on current accounts have already fed through, most of the negative impact from remittance inflows may be yet to come, it said. (PTI)
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