Oct 17 - 23, 20

In the first quarter of the fiscal year 2011-12, Overseas Pakistani workers remitted an amount of $3,297.20 million, showing an impressive growth of 24.60 percent or $650.9 million when compared with $2,646.30 million received during the same period of last fiscal year (July- September 2010).

Pakistan has now become the fifth largest recipient and ranks second after India among South Asian countries.

Right now remittances are the second largest source of forex after exports earnings. It helps in controlling the forex reserves because the State bank of Pakistan can conveniently purchase US dollars either from open market or through inter-bank deals. They also help in overcoming high trade and current account deficits.

Whenever Pakistan faced critical shortage of foreign exchange, remittances provided the much needed 'breathing space' for bringing about structural changes in her economy. On the other side, remittances have a good effect on adverse balance of payments position, which is a healthy sign of stable economy for planners.

Even the impact of remittances on poverty alleviation has also been positive. The migrant workers largely belonged to either peasantry or rural unemployed or urban poor. Remittances helped in extricating their families from below poverty line status.

With their salaries significantly higher than they could have ever dreamed at home, they were in a position to provide their families back home with the basic amenities of life. The recipients often depend on remittances for covering day-to-day living expenses, to provide a cushion against emergencies, or, in some cases, as funds for making small investments.

Despite all these positive impacts of remittances, government is not giving incentives to the expatriates. It should introduce migrant's specific schemes, not the one already existed for general public, to fully utilise the potential of remittances.

It should provide opportunities to overseas workers for investment and future development plans in saving schemes sponsored by the public and private sector banks. Saving rates are quite low. Both the government and the central bank seldom talk about promoting national savings habits and use them as debt instruments only.

An adequate rate of national saving is regarded as an essential condition for achieving targets in the investment and growth rates. Government should take initiatives for mobilisation of national savings, particularly private savings that can play a key role in accelerating economic growth.

It is estimated that 50-60 per cent of remittances are spent on current consumption and only about 10 per cent go into saving and investment. Much of the remittances are used for repayment of loans, in daily expenses such as food, clothing, child education and healthcare and basic subsistence needs.

Funds are also spent on building or improving housing, buying land or cattle or durable consumer goods such as washing machines and televisions. Remittances are also utilised for financing migration of other family members on social ceremonies and community development activities.

According to International Fund for Agricultural Development, about a third of the cash sent home by migrants went to rural areas, where about 10 to 20 per cent is saved; most is hidden away in the home - in cooking pots and under mattresses - rather than put to work in savings accounts. IFAD warned this "missed opportunity" meant that local communities failed to benefit from opportunities for economic development.

No doubt, government in order to encourage migrants to hold their saving balances in financial asset at 'home' as opposed to the host country has introduced foreign currency denominated bonds. A special package of Foreign Exchange Remittance Card (FERC) has been implemented and under these five categories of remittance cards are offered to those overseas Pakistanis who remit $2500 to $50,000 in a year. Along this, a wide range of incentives are being offered to the foreign exchange remittance cardholders under this scheme.

Such schemes are not new. In 1985, a scheme of foreign exchange bearer certificates was introduced, given the facility to the migrants that whenever desired it could be cashed in foreign or domestic currency. However, after nuclear explosion these bonds were converted back into rupee bonds by government by upsetting many Pakistani investors.

On the other hand, why would one try to save when returns on all saving instruments fail to compensate for even the normal inflation cost? The return on bank deposits remains negligible at a nominal mandatory rate of five per cent while banks charge more than 14 per cent interest on advances. The stocks market has also proved to be an unreliable source for ordinary people to get reasonable returns. In fact, stocks have taken away more than Rs1.8 trillion of the hard-earned savings of small investors in a matter of few years because of manipulations and repeated market crashes.

The national savings schemes, despite their reliability and better returns than banks but much less than inflation rate, provide a narrow window owing to constrained outreach, limited staff and outdated technical support and practices. Notwithstanding stating that the profit which is not withdrawn on due date automatically stands reinvested and would be calculated for further profit on completion of the next 06 months' period and so on, in some cases it is observed that the profit is not included, which also causes the lack of trust in government schemes.

The central directorate of national savings (CDNS) finalised the scheme to launch three different saving instruments of three, six and 12 months at prevailing market based interest rates of about 12-13 per cent and was ready to issue advertisements to the media to attract general public when it was stopped at the eleventh hour. The lending agencies and the commercial banks believe that a majority of depositors could withdraw their deposits from banks in case the CDNS provided them an opportunity with higher interest rates of 12-13 per cent and easy exit and entry options. As a result, the proposed window for better returns to small savers has been shut before its launch.

A number of developing countries, including Brazil, Mexico, India and the Philippines, offer incentives to attract transfers into local savings and investment funds, like migrants pension plans, offer preferential loans or grants for business ventures using remittances and provide access to capital for recent returnees into positive term.

The Indian government provides temporary and permanent migrant workers with the incentives to remit to foreign-currency accounts (RCFAs), which can be repatriated, by domestic banks by offering a premium over and above the interest rates available in the international financial market. Side by side, Indian government is allowing non-resident Indians to open foreign currency non-resident accounts which can be denominated in dollars or pounds sterling. The balances on these accounts and interest earned are repairable and the deposits are also exempt from wealth tax.

In Bangladesh, migrants can have a non-resident foreign currency deposit (NFCD) account in any branch of Bangladesh bank or foreign bank that holds an authorised dealership license. Remittances can be saved in a five year wage earner's development bond on which the interests is tax free, or in a non-resident investor's taka account (NITA) for investment in shares and securities. The capital and profit money is tax exempted. US Dollar investment Bonds and US Dollar Premium Bonds are other schemes that have been introduced.

These allow Bangladeshi emigrants to invest in foreign currency. National Bank, Islamic Bank Bangladesh Ltd (IBBL), and BRAC Bank have some special saving schemes that are accessible to migrants abroad.

Government of Pakistan can also adopt a technique devised to cope with the deteriorating external imbalance, originated by Turkey. It was a form of foreign borrowing known as the "convertible Turkish Lira deposit" or "Dresdner Bank" scheme. The program, dating from the late 1960s, was designed to attract the savings of Turkish nationals working in foreign countries. According to the scheme, the Central Bank of Turkey offered interest rates on foreign exchange deposited in Turkish commercial banks 1.75 percentage points above the Euro market rate while also guarantee the foreign exchange value of both principal and interest. The scheme was withdrawn for a few years, but reintroduced in February 2001, and even end of that year, such deposits by Turks living in Europe amounted to US$10 billion.

Interestingly, seeing the public disappointment with the banking industry, a few private companies have started to fill the void and attract ordinary people who are reluctant bank depositors. Like one of the leading industrial group Engro had raised about Rs4 billion through its Engro Rupiya products, offering at a rate of return ranging between 11-14.5 per cent for a three-year maturity.

Overseas Pakistanis can invest in the real estate, oil and gas, manufacturing, engineering, cement and car making industries. These were some of the potential areas where 7.5 million overseas compatriots could make profitable investments and contribute to overall growth of the economy.

No one can deny that remittances provide a significant source of foreign currency, increase national income, finance imports and contribute to the balance of payments. Saving instruments can become another effective mechanism for encouraging remittances to flow through official channels.