ENCOURAGING OVERSEAS PAKISTANIS TO REMIT MONEY
TARIQ AHMED SAEEDI
July 26 - Aug 1, 2010
Overseas workers' remittances have been increasing since last few years and in last fiscal year, the volume of inflows made a landmark as overseas workers sent 14 percent more remittances to Pakistan in financial year 2009-10 over the preceding year. They sent $8.91 billion to the country during the year. In 2008-09, the inflows stood at $7.81 billion. That amount was also considered the highest in view of previous records.
State Bank of Pakistan termed the remittances in the last fiscal year as outstanding because 'the flows were made despite global financial crisis', it said in a press release.
Global financial crisis wrought havocs to the economic systems of all major economies. The spillover effects were seen evidently in major and minor developing nations, which depend on the smooth working of world markets to flourish their trade and industries. The crisis stirred a bout of layoffs affected companies adopted as cost-cutting measure. As far as, impact on export economies of such economic endemic and organisational restructuring are concerned, it is quite clear that global recession triggered a pullback in international trade. Pakistan's trade and industry remained a victim at the peak of global economic crisis just two-year back and mainly its foreign exchange earner textile industry saw a considerable slash in export orders from crisis-stricken countries in the world.
However, in spite of recession workers' diaspora of all nations looked back home to channelise their incomes. A matter of fact is that recessionary pressures made overseas workers to choose their home country a safe option to park money. The case was not specific to Pakistan alone, but the trend was common world over at that time. Looking at the growth pattern of inflows of remittances from overseas Pakistanis during last two financial years reveals the interest of overseas workers in home country for sending money. Local economy was not in a stable position; inflation at all time high had made the cost of living unbearably high. This also led to growth in remittances that worked as cushion for workers' families to shield against unabated double-digit inflation.
In last three years, Pakistan's economy passed through worst kinds of crises. Foreign reserves in the country plummeted to three billion dollars because of political instability and shift from consumer-led growth. Inflation reached to all time high, current account deficit developed a wide crater to be filled with only external financing, and government needed external supports to meet budget deficit. Returning to IMF saved a default of the country on international payment-obligations. As all lending programme begins with some withering costs, IMF's loan also made government to take strict public-unfriendly actions, such as rise in gas and electricity tariffs and removal of subsidies, to service debts. Demand of reformed GST is another condition of lending.
External supports could be from international lenders, donors, export earnings, and remittances from Pakistanis working abroad. Overseas Pakistanis send money down to the home country to their families or associations they have made in the country. Latter transfer is a type of investments in the country whilst spending by former also becomes part of gross development product. Joint venture is common nature of this association. Up in value as compared to Pak rupee, foreign currency from gulf countries, Europe, or USA has extensively grabbing buying capacity in Pakistan. It is relevant to mention findings of an international survey that ranked Karachi amongst the cheapest cities in the world. This benefit of cheap products is for foreigners obviously, since local income groups are battling the hardships of life with modicum of incomes in the face of ubiquitous inflation.
While the country is reaping the downsides of disturbed macroeconomic indicators, it has certain sectors faced extraordinary booms in values. Such sectors outperform market conditions and thus investment in them is known internationally as top-down investing. Real estate sector has remained a target of short-term profit seeking investors. It has witnessed a strange appreciation in values for realtors of properties. Unregulated the sector sees the value of properties treble in a brief period making it lucrative mode of sizeable investments especially from foreign exchange convertible account. Stock market might be enlisted another trigger of remittances. Overall, consumer-led economic growth gave a boost to the inflows.
The remittances received last year broke the target set for FY10 in the annual plan. It was beyond the expectation of the government that did not pin hopes on FY09's inflows of over seven billion dollar and therefore set $7 billion target for the 2010. According to the SBP, the average monthly remittances from July 2009 to June 2010 were recorded at $742 million, well above $650.95 million in the comparable fiscal year. The amount is in fact remarkable when compared to the total trade driven foreign exchange of the country. Phenomenal growth in remittances is shoring up the foreign reserves position of the country and bringing down its current account deficit.
PAKISTAN REMITTANCE INITIATIVE
Besides, global conditions that turned out in favour of remittances, it was also on the credit of some policy initiatives which government took to further motivate overseas workers to send foreign exchange to the country through formal channels. A joint effort of State bank of Pakistan, federal ministry for overseas Pakistanis, and ministry of finance has been launched last year to incentivise flows of remittances from formal channels.
Federal minister for overseas Pakistanis, Dr Farooq Sattar has said that the ministry is preparing a policy for overseas Pakistanis to encourage them to use formal channels to remit incomes to the country. He said over eight million Pakistanis are outside the country. Not all send remittances to the country and even many of them are still using other channels. With families abroad, for example, they find it unimportant to remit or inopportune to do so. Along with efficient remittances transfer system, there is also a need to develop transparent and profitable saving plans to create an opportunity of investments for overseas Pakistanis.