Remarkable performance


Nov 25 - Dec 01, 2002

Home remittances sent by the overseas Pakistanis have almost been tripled to $1.3 billion in the first quarter of the current financial year i.e. July-October 2002... Gross home remittances rose to $1.43 billion in four months to October 2002 from about $529 million in the comparable period of the previous year.

Gross home remittances include workers remittances, encashment of foreign currency bearer certificates and foreign exchange bearer certificates, Hajj remittances by the relatives of the intended Hajis and remittances from Kuwait-Iraq war affected people.

The unusual rise in the home remittances becoming a major source of foreign exchange earnings for the country is due to narrowing gap between the official and the open market exchange rates.

Before the events of September 11 there was a big gap between the official and open market rates which was naturally a big temptation for the remitters to use the unofficial channels to get a better rate of the dollars sent by them. However, the situation altogether changed as the United States and other countries started tracking down the outflow of money move closely. This prompted many overseas Pakistanis to shift part of the money they had put in the safe havens back to Pakistan through official channels. The golden and silver cards schemes initiated by the government for those sending money back home through official channels also helped raise the remittances level. According to an estimate, the home remittances have shown a growth of 170 per cent in the first four months of the current fiscal year.

During the last week alone, dollar shed about 32 paisa against rupee as a steep fall in forward premium have prompted the exporters to sell future export proceeds faster than before. The dollar appetite of the market was further saturated with larger inflows of foreign currency through home remittances and quicker conversion of foreign currency deposits into rupee. Dollar has depreciated by 2.7 per cent against rupee since the beginning of the first quarter of the current financial year. The surprising change in the rupee-dollar complexions is reflected today as against altogether different situation when the then government had freeze foreign currency accounts in Pakistan. The foreign currency holders were reluctant to convert their dollars into rupee to such an extent that they had gone to the court against the decision of the government to convert the foreign currency accounts into rupee. But today the situation is on the reverse, the investors who used to consider dollar as the safest haven for investment are shifting from dollar to rupee.

The fast improving financial strength of the country reflected in unprecedented growth of foreign exchange which are very close to $9 billion are expected to cross the mark $10 billion of the current pace of inflow from external resources sustains during the remaining part of the financial year.

The international credit rating firms have also started transmitting positive signals about Pakistan's improved financial health. Moody's Investors Service has also raised outlook from Stable to positive on Pakistan's B3 country ceiling for long-term foreign currency debt on stronger foreign currency reserves and ability to meet external liabilities. This credit rating agency has said that as a result of this action, the outlook on the B3 rating of the government's outstanding Eurobond has been moved to "Positive'' from 'Stable'. Pakistan's strong recovery in external assets relative to short-term liabilities and the greater likelihood that these assets can be retained, has warranted an upward shift in the outlook to "Positive'. This international credit rating agency has pointed out that an initial build-up in reserves had already been taken into account in its upgrading of Pakistan's foreign currency ratings to B3 from C-1 in January. Pakistan's foreign currency reserves increased to over $8.6 billion this month on increasing remittances and State Bank buying of dollars from the market. The agency expects that Pakistan's economy would continue to grow at a pace similar to that of the last few years, although an improvement in global demand coupled with greater political stability, could push growth even higher.

Moody's says that for the longer term, faster growth and poverty alleviation will depend on the pace of structural reform and on whether the political environment is stable enough to attract increase in private investment.


There are positive signals on the investment front also. During the first four months of the current financial year, country received about $400 million Foreign Direct Investment showing an increase of 234 per cent as compared to the corresponding period last year. In October alone the flow of investment was $229 million, as compared to$119.6 million DFI in the first four months of the previous financial year. Optimism calls for the hope that these positive signals of the economy would sustain in future also especially in the backdrop of the newly installed political government in Pakistan.