The Remittances Surge
The fiscal year 2010-2011 witnessed record remittances from expatriate Pakistanis. The figure has already crossed the $9 billion target set under the Annual Plan for the current fiscal year. Remittances reached $9.05 billion in the first 10 months (July-April), showing an increase of $1.74 billion or 23.81 percent compared with $7.31 billion received in the same period last year.
According to financial experts, the rise in remittances is a good sign as it is helping Pakistan in keeping its external account in a comfortable position. However, experts also do not regard the high remittances as a complete recovery and suggest careful measures to the government for broadening the tax net in the upcoming budget.
Under its stressed economic conditions, when Pakistan is laying strategies for foreign direct investment, remittances are playing a role which is as important as FDI for the country. The new money transfer patterns have strengthened Pakistan’s financial capacity to spend on oil imports, manage the current account deficit and keep the exchange rate stable.
Most remittances of money are used to buy or construct homes, purchase consumer goods, pay off debts and invest in real estate. This pattern has not changed since the 1980s. The inflow of remittances is due to the savings of the expatriate workers, with Pakistani workers only in the Gulf saving up to 70 percent of their incomes. This has a positive economic and social impact on households receiving the remittances. The inflow also contributes to improving the balance of payments position.
The joint initiative of the State Bank of Pakistan with the Ministries of Finance and Overseas Pakistanis, needs appreciation in this regard. The ‘Pakistan Remittances Initiative (PRI)’ facilitates the flow of remittances through formal channels, and bypasses the evil of Hawala and Hundi. The project is regarded as successful and is commended for the new surge of remittances, in terms of the increasing number of expatriates preferring formal channels for money transfer.
The Asian Development Bank suggested in its 2010 report, that the goal of Pakistan’s economy should be focused on utilizing the flow of remittances for long-term investments. It will take the economy away from consumption-led growth, which is possible by providing fiscal incentives to the returning migrants for setting up small and medium scale businesses. ADB also proposed a special exchange rate on remittances arriving in special savings accounts in the domestic financial institutions.
The major portion of remittances coming to Pakistan originate from the UAE, Saudi Arabia, USA, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK, EU, Norway, Switzerland, Australia, Canada and Japan