Pak­istan’s army of overseas work­ers keeps econ­omy afloat

The Pak Banker - - COMPANIES/BOSS -

Liv­ing in poverty in a mud shack in Pak­istan, Mazhar Ali dropped out of school, sold the fam­ily’s two buf­falo and bought a visa to work in Dubai. The money he sends home is paying for a new house. “We’re go­ing to build three rooms with bricks and ce­ment, plus a court­yard and a wash­room,” said his younger brother Azhar in Larkana, home town of the rul­ing Peo­ple’s Party about 300 kilo­me­ters north of Karachi. “We will then start mar­ry­ing one by one, start­ing with Mazhar some­time this year.”

The fam­ily’s change in for­tunes re­flects a ris­ing trend of rich na­tions with ag­ing work­ers tap­ping poorer ones for la­bor — to­tal re­mit­tances to de­vel­op­ing economies will rise 7.9 per­cent this year, and reach $534 bil- lion by 2015, the World Bank says. For Pak­istan, the in­come of­fers a source of sta­bil­ity, with the coun­try poised for its first civil­ian han­dover of government in May even amid power short­ages, bomb­ings and a Tal­iban in­sur­gency.

“This is our sav­ior for keep­ing Pak­istan out of the oxy­gen tent,” Fa­rooq Sat­tar, former Min­is­ter for Overseas Pak­ista­nis said in an in­ter­view. “It has kept us from a com­plete eco­nomic col­lapse.”

Al­most 10 mil­lion Pak­ista­nis work overseas and the sum they’ve sent home has dou­bled in the four years through June, to a record $13 bil­lion.

The ris­ing tide of funds from overseas con­trasts with a strug­gle by Pres­i­dent Asif Ali Zar­dari’s ad­min­is­tra­tion to raise enough rev­enue to fund pro­grams that would boost domestic growth.

Pak­istan had to pay about $7.5 bil­lion to the IMF be­tween 2012 and 2015, Moody’s In­vestors Ser­vice said in July. The government re­paid $3.2 bil­lion as of Feb. 26, the cen­tral bank said.

The government is eval­u­at­ing a pos­si­ble fur­ther loan from the fund as a buf­fer against shocks, Saleem H. Mand­vi­walla said in De­cem­ber as Fi­nance Min­is­ter. The lo­cal cur­rency has fallen on con­cern loan re­pay­ments will erode for­eignex­change re­serves, which fell to $7.5 bil­lion in Jan­uary from $11.8 bil­lion a year ear­lier, ac­cord­ing to the cen­tral bank. The ru­pee traded at 98.35 per dol­lar at 9:30 in Pak­istan, near a record low.

Pak­istan was among the 15 low­est rev­enue-gath­er­ing na­tions in the world as a per­cent­age of GDP, ac­cord­ing to the U.S. Cen­tral In­tel­li­gence Agency’s World Fact Book 2012. The South Asian na­tion recorded the high­est bud­get deficit in two decades in the fis­cal year through June as it missed its tax tar­get. The na­tion’s fis­cal deficit may be 7.5 per­cent of gross domestic prod­uct this year, wider than the government’s tar­get of 4.7 per­cent, the IMF said in Jan­uary.

Among the big­gest chal­lenges for the government is the need to add al­most 4,000 megawatts of power gen­er­a­tion to end a short­age that’s caus­ing black­outs for as long as 18 hours a day, idling fac­to­ries and swelling un­em­ploy­ment. The government said en­ergy short­ages cut eco­nomic growth last year by as much as 4 per­cent­age points.

“Ex­treme poverty has not risen as much as it would have with­out re­mit­tances,” Rashid Am­jad, a pro­fes­sor at the La­hore School of Eco­nom­ics said in an e-mail. “Most of the re­mit­tances are flow­ing into con­sump­tion, real es­tate, hous­ing and the stock mar­ket, and have played a crit­i­cal role in keep­ing Pak­istan’s econ­omy afloat.”

Pak­istan will hold par­lia­men­tary elec­tions on May 11, af­ter the out­go­ing government, led by Zar­dari’s Pak­istan Peo­ples Party, be­came the first demo­crat­i­cally elected ad­min­is­tra­tion in 65 years of in­de­pen­dence to com­plete its term. The Peo­ples Party, dogged by the en­ergy cri­sis, se­cu­rity con­cerns and in­fla­tion above 7 per­cent, gar­nered half the sup­port of its lead­ing ri­val, the Pak­istan Mus­lim League of former pre­mier Nawaz Sharif, in a March 4 opin­ion poll pub­lished by Gallup Pak­istan. Re­mit­tances that fuel a thriv­ing un­der­ground econ­omy may rise fur­ther in the next few years as more Pak­ista­nis seek em­ploy­ment overseas, said G.M. Arif, an econ­o­mist at the Pak­istan In­sti­tute of Devel­op­ment Eco­nom­ics in Is­lam­abad.

Pak­istan was among the world’s top 10 re­cip­i­ents of recorded re­mit­tances in 2012, ac­cord­ing to the World Bank. Sat­tar es­ti­mates bil­lions of ru­pees from abroad are un­re­ported, trans­ferred with the help of il­le­gal money op­er­a­tors known as hawala or hundi. Pak­istan’s recorded re­mit­tances would dou­ble if the il­le­gal chan­nels were closed, he said.

Some Pak­ista­nis also use the sys­tem to avoid paying tax, said Nuzhat Ah­mad, di­rec­tor of the Ap­plied Eco­nom­ics Re­search Cen­ter at the Univer­sity of Karachi.

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