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Financial discipline and economic policies producing results

By AMANULLAH BASHAR
Oct 30 - Nov 05, 2000

Broad-based economic and financial reforms initiated by the present government for documentation of the huge informal economy have started yielding positive results.

Beside marked improvement in exports which have registered an increase of 15 per cent, 7 per cent growth rate in agriculture sector and manufacturing sector at 6.01 per cent, a quantum jump in workers home remittances is the most noticeable signal regarding the acceptance of documentation efforts of the economic managers.

The workers home remittances have registered a noticeable increase of almost 92 per cent during the first two months of the current financial year is a strong indicator of improvement in the black economy through documentation process launched by the government. Workers remittances have been doubled during the period under discussion as compared to the corresponding period last year. Workers home remittances were estimated at $251 million during July-August 2000-2001 against the $131 million during the corresponding period last year.

This is a major change in the attitude of the workers abroad in the last several years. The government's target to document every source of income in the years to come has cautioned the people. In order to avail maximum return on dollars in the open market and the swift transfer of money by the Hundi operators, the non resident Pakistanis working abroad were using (Hundi system) unofficial channels to remit their incomes to Pakistan. The lethargic services provided by our banking system, which take weeks to transfer the remitted amount to their accounts also proved instrumental in distracting the interest of non-residents to use unofficial channels. According to a young man working in Saudi Arabia, his mother receives on the same day, the money given in Saudi Arabia.

Since people are now required to declare the source of income due to documentation process launched by the government, people now find it safer to remit their income through official channels.

Ali Raza Mooney of Taurus Securities expressing his views about an unusual increase in home remittances said that actually it is an outcome of the measures introduced by the government for financial discipline. The broad-based policies introduced by the government to bring financial discipline in the economy and to bring the informal economy in to tax net have started showing results. Mooney feels that economic decisions to develop a tax culture in the society are one of the major reasons for enhancing the home remittances.

Traditionally speaking, Pakistanis were used to send their money through unofficial channels to get optimum return specially from the open market. People now have realized the importance of the official banking system, which helps to prove genuineness of their income.

Although a large majority of workers have started utilizing the banking channels for remitting their money, yet there is still room for improvement in the banking service.

Financial experts, however, are attributing this positive development to the financial and economic policies specially free float of dollar in the inter-bank market resulting in an increase which almost doubled when compared to the foreign exchange receipts prior to the policies introduced.

The major remittance countries are including Saudi Arabia, UAE, Kuwait, USA, UK, Oman and Bahrain.

Workers remittances had been showing a declining trend during the last decade, falling from $1.848 billion in 1990-91 to $ 1.060 billion in 1998.99. This denoted a shortfall of $788 million or 42 per cent in the 90s.

The financial year 1998-99 depicted a sharp fall of 28 per cent or $429 million, the highest during last ten years.

The financial sector feels that the steep fall can be attributed to the large spread between the composite rate and open market rate for dollar prevailed during this period discouraged overseas Pakistanis to send their savings through normal banking channels. The remittances during July-August 1999-2000 also demonstrated a downfall of 9.5 per cent to $795 million.

During July-April 1999-2000 the remittances from Kuwait sharply increased by 35.2 per cent mainly because of release of funds for Gulf war victims.

Remittances from Saudi Arabia witnessed a rise of 35 per cent during the same period.

Remittances from the United Kingdom have already picked up pace and same spirit is being shown by non-resident Pakistani workers from Gulf States. The financial managers taking increase in home remittances as a positive sign specially for for balance of payments.

In last three years or so some measures have been taken which includes induction of professional managers in the banking system, reducing expenditures, improving the services and quality of loans, making provisions to strengthen capital base.

The results are encouraging but there is still large number of problems remains unresolved and several crucial issues including the privatization of a number of banks, development of secondary markets and efficient payments systems are still to be taken up.