Home remittances sent by overseas Pakistanis have
shown phenomenal rise during the first 2 months of the current financial
year. These are reported to be about $700 million — almost 3 times as
compared $181.63 million in the same period last year. This should help
in boosting the country's economy specially in the external sector.
In August 2002 it was 392 million dollar as against
$97 million in Aug. 2001, disclosed the Finance Minister Shaukat Aziz
saying that this four-time increase reflects underlying confidence in
the system that had also contributed to the strength of the rupee. Total
remittances during 2001-2002 were $2.39 billion. There is a strong
possibility that the level of remittances would be somewhere between
$3.5-4 billion during current fiscal year, he added.
The systematic change on the quantum of remittances
took place on the post 9/11 period, when international drive against
hundi or hawala system forced Pakistani workers to switch over to formal
banking channels instead of traditional open market transactions.
Hawala or trust is a traditional South Asian model
where anyone can send someone through a kerb market dealer simply
through a shake of hand, without any paper work. However, when American
FBI started hounding such offshore moneychangers in Dubai, Saudi Arabia
and the United States on suspicion of terror related flows, it created a
knock on effect.
Even those Pakistanis who were placing their black
money in the safe havens, away from the NAB or revenue authorities, sent
back their holdings to avoid freezing of their deposits, or questioning
by the respective regulatory authorities. As a result local market was
awash with liquidity during last 12 months, with a significant decline
Buyers were mainly smugglers and black money holders,
also in some cases, genuine businessmen who left the country due to
continued political wrangling and misguided accountability drives. There
was no evidence that this latter business elite had reverted back to the
country, but demand for financing smuggled goods had evaporated due to
security scenario on Pak-Afghan border and greater threat perception.
As a result rupee is riding high against the US
dollar, appreciating from Rs.64.2 to a dollar just ahead of attacks on
the World Trade Centre in the official interbank market to Rs.59.18/
59.20 to a dollar on Wednesday for buying and selling. And, even lower
at Rs.59 to a dollar in the kerb trade.
The Central Bank that purchases over $7.7 billion
through offshore moneychangers and interbank market during last three
years had almost stopped purchases from the open market dealers,
switching to official interbank market and foreign exchange companies.
But the continued flow of remittances and official
and multilateral assistance had kept the reserve level high. On last
Tuesday, the State Bank of Pakistan (SBP) reported $7.7 billion
reserves, according to the Ministry of Finance.
The money does not include $317 million new defence
services payments from the United States and almost $100 million
privatization proceeds of the United Bank Limited (UBL). Finance
Ministry claimed that within a week or two, reserves would cross $8
It is expected, if no adverse situation arises, the
forex level would be much higher by end of the current fiscal year,
providing much needed confidence booster to the foreign investors that
remained away from Pakistan in recent years to balance of payments
worries and threats of defaults. However, stable political and law and
order situation would be a prerequisite for that to happen.
The increase in home remittances through official
channels has been attributed to the fact that the gap between the
official and unofficial exchange rates had remained almost negligible in
July and August. At times the US dollar is said to have become dearer in
the kerb market. The golden and silver cards schemes initiated by the
government for those sending their money through official channels also
helped in raising the level of home remittances.
All this has once again shown that by following the
right kind of monetary policy and by offering some incentives. The
government can further encourage home remittances through official
channels. What is, therefore, implicit in the situation is that exchange
rate stability will need to be ensured on a sustained basis. Foreign
exchange reserves will soon be reaching eight billion dollars touching
an unprecedented level. That should help in the revival of investor
Against the backdrop of economy growing by 3.5 per
cent last year, fresh economic assistance being made available by the
donor community on soft terms, greater market accessibility provided by
the European Union and foreign investment also showing signs of
improvement, the government has acquired greater capacity to address the
still unresolved economic issues. With external sector having gained in
strength, the government ought to be focusing more attention on issues
like attracting fresh investment, creating new jobs and expanding social
sector services. Poverty reduction efforts have to be redoubled. It will
also be necessary to accelerate exports. As the foundation for economic
revival has been laid, it is about time to start consolidating the
gains. The benefit of every improvement in economic indicators should
also be reaching the consumers who have long been awaiting the results
of the reforms.