Role of remittances
Remittances play a crucial role in Pakistan's economy, providing a much-needed inflow of dollars to boost foreign exchange reserves. At $19.3 billion, Pakistan ranks fifth in the world that receives the most remittances every year. India is the largest remittance-receiving country, at an estimated $72 billion, followed by China ($64 billion), the Philippines ($30 billion) and Mexico ($26 billion), according to the World Bank report 2015. Globally, an estimated $574 billion was remitted by migrants to home countries in 2016, down 1% from 2015, when the amount was $581 billion. This is the second drop in global remittances since the global financial crisis of 2007-08. Despite this recent decline, remittances sent by migrants are still about double of what they were a decade ago, before the sharp decline in the global economy during the late 2000s.
Pakistan receives most of its remittances from the Gulf countries, but, within the region, Saudi Arabia and the UAE stand out. According to Pew Research Center, Saudi Arabia was the leading source of remittance for Pakistan with $5.8 billion being remitted in 2016. Other leading countries were the UAE ($5.7 billion), the UK ($1.7 billion), the US ($1.33 billion), Kuwait ($1 billion), Canada ($565 million), Singapore ($531 million) Qatar ($483 million), Oman ($403 million), Bahrain ($305 million), Spain ($251 million), Italy ($248 million), Germany ($193 million), Australia ($122 million) and Afghanistan ($119 million).
Pakistan received overall remittances of $19.3 billion in fiscal year ended on June 30, 2017, down 3% compared with $19.91 billion in fiscal year 2015-16. Remittances play a major role in stabilising Pakistan's external sector, as they make up almost half the import bill and cover the deficit in the trade of goods account. However, in recent times, they have come under pressure due to global economic slowdown on the back of low crude oil prices. In the given circumstances, the State Bank of Pakistan has been trying to devise ways to increase home remittances. The widening of current account deficit over the past one year and a half has underlined the need to enhance the flow of remittances from abroad. With a view to promoting home remittances through legal channels, the State Bank has now launched 'Asaan Remittance Account' scheme for prospective beneficiaries of home remittances. It is believed that this move will facilitate opening of bank accounts by low-risk customers to receive home remittances through proper accounts instead of resorting to traditional cash over the counter transactions.
It may be added here that this initiative has been launched in collaboration with Pakistan Remittance Initiative (PRI) to promote the use of bank accounts by home remittance recipients. Individuals can open these accounts with a simple, one-page account opening form, which is both paper-based and electronic, requiring only basic customer information. The account is designed only for beneficiaries of home remittances and will be fed with the proceeds of home remittances only. A maximum credit balance limit of Rs 2 million, cash withdrawal limit of Rs 50,000 per day and fund transfer limit of Rs 50,000 per day has been set for these accounts. The prospective recipients and their family members can open bank accounts at banks' branches or through banks' permanent staff visiting customers' places. International Bank Account Number (IBAN) and names of prospective remitter stating relationship with the account holder is a mandatory requirement for the 'Asaan Remittance Account'.
Of late, the PRI seems to have lost its effectiveness. In view f this, the latest initiative of ' Asaan Remittance Account' has been started. Obviously, if the beneficiaries are convinced about the convenience of such an account, more transactions would be channelized through the banking system and the amount of home remittances would increase to support the external sector position of the country.