IMPROVED REMITTANCES FLOW AND A SLIDING RUPEE
July 26 - Aug 1, 2010
Pakistan's economy, though showing signs of recovery, has gone through a phase of recession partly owing to the global conditions and partly because of the rupee slide. The swift rupee depreciation, as pointed out repeatedly, was to a greater extent triggered by an untimely political change and subsequent induction of a government that has little time at its disposal to focus on grave economic issues. What surprises one is the fact that no conscious effort was made by the state bank to check the freefall of rupee. If the exchange rate went up from Rs61 a dollar to Rs78 a dollar during the worst economic period, it was understandable. But, its further fall to Rs86 a dollar despite improved economic situation and greatly replenished reserves position is simply inexplicable. Presently, the open market collaboration of banks and exchange dealers sets the exchange rate. This is a risky proposition as banks and exchange dealers do not have an enviable record when it comes to earning profits at the expense of national economy. Stability of exchange rate is not a trivial issue to be left for the banks and exchange companies to resolve. On this issue hinges the economic future of the country.
Timely IMF assistance and a sustained and improved flow of workers remittances have pushed the country back from the brink of disaster. Those criticising resort to IMF are green card holders of fools' paradise. They seem busy focusing on the rusting property of oxygen while a patient is literally dying for it. Although still on vent, the economy owes a great deal to the overseas Pakistanis who are constantly pumping blood into its sagging veins.
This year, the remittances have touched the dollar nine billion mark. According to an estimate, we can have a $20 billion annual inflow of this invaluable external source of sustenance if we are able to receive it in entirety through formal channels. The trio of Ministry of Finance, Ministry of Overseas Pakistanis, and State Bank has done an excellent job by masterminding and launching Pakistan Remittance Initiative (PRI) through which certain incentives to both remitters and beneficiaries have been announced. Moreover, the linkages and tie-ups between foreign entities and Pakistani banking system have also been developed to ensure the same-day credit of remittances in beneficiaries' bank accounts. The volume related reimbursement of marketing expenses to the overseas entities is also a well-thought-out measure. Pakistan International Airlines is also being used as a vehicle to promote healthy flow of remittances through official channel.
In the wake of Dubai World debt crisis, it was being feared that the remittance flow from UAE might undergo a negative change. Surprisingly, this has been proved wrong. UAE remains to be the major contributor to the year-on-year increase in remittance inflow. The crackdown on illegal money operators in Dubai and remittance policy offensive in Pakistan could well be the reasons behind the sustained remittance flow from UAE.
During the first 10 months of the outgoing financial year, workers from UAE remitted $1.663 billion against $1.689 billion during the entire FY-09. Saudi Arabia and USA are the next in the line followed by other GCC countries and UK. The ten-month remittance inflow from these countries amounted to $1.526 billion (Saudi Arabia); $1.462 billion (USA); $1.033 billion (Other GCC countries); $0.735 billion (UK).
REMITTANCES FROM VARIOUS COUNTRIES ($ IN MN)
COUNTRY 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 9-MONTHS
Bahrain 80.55 91.22 100.57 136.28 140.51 153.27 116.10 Canada 22.90 48.49 81.71 87.20 100.62 79.07 82.79 Germany 46.52 53.84 59.03 76.87 73.33 100.71 62.56 Japan 5.28 6.51 6.63 4.26 4.75 5.10 4.69 Kuwait 177.01 214.78 246.75 288.71 384.58 432.05 332.75 Norway 10.19 18.30 16.82 22.04 28.78 24.94 27.33 Qatar 88.69 86.86 118.69 170.65 233.36 339.51 27299 Saudi Arabia 565.29 627.19 750.44 1,023.56 1,251.32 1,559.56 1,342.77 Oman 105.29 119.28 130.45 161.69 224.94 277.82 210.98 UAE 597.48 712.61 716.30 866.49 1,090.30 1,688.59 1,497.24 UK 333.94 371.86 438.65 430.04 458.87 605.59 660.97 USA 1,225.09 1,294.08 1,242.49 1,459.64 1,762.03 1,735.87 1,317.71 Other countries 567.93 507.27 679.50 763.54 695.45 808.87 620.99 Total 3,826.16 4,152.29 4,588.03 5,490.97 6,448.84 7,810.95 6,549.87
Contrary to the general decline in the world remittances in the wake of global crisis, Pakistan has witnessed a sustained growth in the flow of money sent by its overseas workers year on year. Some other Asian countries, particularly in the South Asian region (Bangladesh, Sri Lanka, and Nepal) also recorded increase in the flow of remittances in 2009 in comparison to the previous year.
While debate is on to underline the role of foreign remittance in an economy's development, the fact remains that these remittances are helping Pakistan's economy in a big way. Besides being used for bridging the yawning trade gap, these remittances activate the domestic markets by increasing aggregate demand through consumption expenditure. This not only helps to improve the standard of living of the beneficiaries of this foreign flow of household income but also provides stimulus to the economy. The regular dollar inflow of remittances helps maintain the exchange rate stability. National savings and investment also get boost in the process.
The recent shift of local workers to the international markets as a measure to combat inflation and unemployment appears to have a salutary effect on country's economy. While the capacity to generate higher flow of remittances has built up with these developments, the challenge to channel all inflows through legal conduits has also become stronger. Government needs to develop on regular basis programs like PRI to incentivise overseas nationals to use official channel for the transmission of their hard earned foreign money. Eschewing the use of rhetoric, it should come up with a sound policy duly supported with a set of well-thought-out incentives. The ADB suggestion to offer the remitters a special exchange rate needs to be mulled over.