The Re­mit­tances Surge

Enterprise - - Snapshot -

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

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