Remittances by 3-4 million of overseas residents continue to set new records, bringing many blessings. The remittances crossed over $6.451 billion in 2007-08 and were up by $957.59 million or 17.43 per cent as compared to fiscal year 2006- 07.The remittances have been rising rapidly since 2001.

The real kick start was given by the 9/11 tragedy. Since then hundi system has been under scrutiny by the US agencies and this along with banking reforms, have helped divert remittances from the informal to formal sector.

The remittances have come handy at a time when the dollar is in great demand on account of surge in imports and rupee’s value having depreciated to around 72 to 73 to a dollar. Currently, the remittances exceed direct foreign investment at $5.1 billion received last year or cash foreign loans which are lower than the foreign investment levels. Rising remittances provide strong balance of payments support and are stable source of foreign exchange inflows in a difficult economic situation.

Remittances also support families of non-residents and have contributed significantly to the construction boom.

The foreign exchange reserve which peaked at $16 billion last year has come down to about $10.5 billion. It would have been much lower but for the enhanced remittances.

Remittances while build foreign exchange reserves, are also a source of worry as they increase the money supply in a big way. The increase in money supply caused by the conversion of the remittances into rupees aggravates inflation, which in the case of food prices are up by 32 per cent. Also remittances have provided the banks with a lot of liquidity which has, along with huge external capital and financial inflows, resulted in low rates of returns on bank deposits.

Another issue agonising the ex-chairman of the Federal Board of Revenue is the real source of the remittances. He wanted to know how the hundi has been working in the reverse, that is how much money has been sent from here first abroad, and then brought back home as remittances, cleansed of all illegalities and immoral transactions. But he had not been allowed by Mr Shaukat Aziz and others to look in to the original source of the money. He was sure a large part of the remittances included tax evaded money which went out for a small fee and came back. The money that went out included booty from crime, narcotics trade, gun running, robberies and kidnappings. It also included massive bribes given to big officials, rewards of speculation in the stock market and a portion of export proceeds.

The fact is when the banking system was not being fully used, the remittances came down to below a billion dollars.

Since 9/11 the amount has risen to $6.451 billion. Neither have the number of workers abroad increased enormously nor have their wages increased excessively for the remittances to rise from under $1 billion to over $6 billion. Much of it is workers’ remittances but some of it is tainted money.

It is necessary that effective steps are taken to prevent illegal earnings being transferred abroad.