EFFECTS OF REMITTANCES ON PER CAPITA INCOME

REMITTANCES POST GROWTH RATE OF 20.7% IN JULY-FEB

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Mar 24 - 30, 2008

The remittances sent by the workers into the country during the first eight months of the current fiscal year accounted for US$ 4,124 million, posting a growth rate of 20.7 % as compared to US$ 3,414 million in the corresponding period of the last fiscal year. The consecutive increasing trend of remittances since the start of the second half of the current fiscal year in January and February recorded US$556 and US$552 million respectively. While the high growth rate implied rise in the national income altogether, it also suggested of high rate of emigrating labour force from the country. The list of importing countries of indigenous labours diasporas is topped by the USA, Saudi Arabia, and gulf regions. The country wise break-up of workers' remittances presents the differential figures. While in July-Feb 08, workers from USA remitted $1,160 million in Pakistan that was the highest single contribution in total sent-back money as compared to $891.9 million in the corresponding period of FY07, remitters from Saudi Arabia lingered on the second position for the third consecutive year and sent in the country $761 million, gradual up from $640 million in FY07 and $443 million in FY06 according to the SBP statistics. The currency exchange value of US$ might be one of the reasons behind its forming top position.

BRAIN DRAIN

The third stature for workers remittances from the UK was maintained as on $292 million in the period under review, $281 million in FY07, and $266 million in FY06. During the aforesaid period, the percentage increase in remittances from United Arab Emirates including Dubai, Abu Dhabi, Sharjah, and other was 32.7% and accounted for $681 million as against $513 million in FY07. The recent shift of media persons and especially real estates business generally in UAE and particularly in Dubai outpaced mainly the growth rate of USA. Similarly, Pakistani labour force working in GCC countries that include Bahrain, Kuwait, Qatar, and Oman sent $618 million in FY08, registered an improvement of 32.2 % as compared to $467 million in the corresponding period of the last fiscal year. Therefore, the numbers of remittances-receiving households may have increased during the last couple of months, but this was caused by an additional brain drain.

Pakistan is also acclaimed for its export of human resource for international trade and industry. Pakistani skilled and professional workforce tended towards foreign market because of the attractive salaries as well as the lack in local employability. The loathsome rise in prices of food and non-food products also compelled their urge to earn in foreign currency, which is to maintain its appreciation against local's. The rate of unemployment in the country keeps on rising and sets alarm on about dangerously shortage of talent. However, workers' remittances have not only scaled up the national foreign reserves but also resulted in increase of gross national income. The amount of around $4 billion dollars would subsequently raise the standards of living of certain households to a level coping up inflation and would indirectly revamp the economic outlook even for a short term spectacle. The manifestation of wealth would indeed increase national income even if would not change per capita income in real terms.

INCREASING NATIONAL INCOME

The money sent by the workers into the country is important to fuel the consumption pattern of the economy but as expected this precious reserves would less likely to invest on the economy for the long term. Consumption pattern gets transformed due to the impetus in buying power that would accelerate money spending of the particular consumer group. And, more or less this expedites micro economic activities. Yet, macro economic variables are not inasmuch sparked off; neither the money has invested in aggregation in predetermined sector nor has it created significant multiplier effects in the economy. Government may offer incentives on withholding remittances for investing in short term bonds that also add up collective savings. The utilization of the amount can be made on manufacturing, financial, or any other sectors. The volume of investment may help official efforts to boost the industrialization across the country; that in turn improves the employment condition. Considerably, the interfering factor in effectuating the remittances grossly for a particular sector is the fragmentation in reception. Since, remittances are deposited in heterogeneous time schedule, at a given time bulk investment can not be called. Besides, designated person or group instead of government exercises power on utility of remittances. It is the very discretion of a person that may impede government implementing any such investment policy.

Nevertheless, remittances add-up to foreign reserves strengthen current account position of the balance of payment. The benefits of workers' remittances may be extracted for the well being of the entire society and the economy. Apparently, inclining trend of foreign reserves would improve social restructuring owing to wealth gain. World Bank reveals an alternative opinion on the benefits of remittances sent home from immigrants. It considers maximum chances of low saving of remittances-receiving families and improper expenditures on familial education by them. The expenditures on local education are low prioritized because of more likelihood of such families to immigrate in future. This may be an institutional observation rightly focused on phenomena of developing economies, where national income rise by remittances brought about insignificant changes for societal progress and tactically surged per capita income on average.

In Pakistan, the reverse may be observed. Insofar effectiveness of remittances in promoting investment regime for industrial development is concerned, it is factually proven that the pool of sent-home money is not established. Yet, the remitted amount is somehow subject to spend on social development by families. But equally true is that the gross national income compensates the loss of brain drain, in reality it could not increase per capita income.