Expatriates of the world, unite!
In the last fiscal year alone, overseas Pakistanis remitted over $11 billion, which accounts for almost 7 per cent of the national economy. On the other hand, total tax revenue generated in Pakistan accounts for 10 per cent of the GDP. Since expatriates contribute such huge sums to their motherland, it may be prudent to formalise expatriates’ role in securing Pakistan’s faltered economy.
One can propose reserved seats for expatriates in Pakistan’s Senate or the Parliament, or permanent representation in the Planning Commission or the State Bank to secure their sustained contributions to the economy. If this proposition seems farfetched, then expatriates may consider launching a development bank or a credit union to gain more control over remittances to Pakistan, which are expected to hit $14 billion next year.
Remittances pouring into Pakistan far exceed the social sector spending by the federal government. In the recent federal budget, the development expenditure is approximated at $5.2 billion, which is again much less than the $11 billion in remittances. Furthermore, remittances are an order of magnitude higher than what Pakistan receives in aid from development banks and donors for social sector spending.
Despite the remarkable contribution to social spending in Pakistan, expatriates have no real representation on any political and economic platform in Pakistan. Imagine for a second that the $2.5 billion in remittances contributed last year by 1.2 million Pakistani workers in UAE were in fact collected as part of a tax levied on overseas Pakistani workers. Shouldn’t the government then consider giving representation to the million Pakistani workers in UAE the same way it gives representation to the million taxpayers (and millions of tax evaders) who reside in Pakistan. After all, no taxation without representation was the slogan behind the American revolution.
I can already see people objecting to the propositions I have laid out above. One may argue that remittances are not taxes, but in fact are funds provided by the expatriate workers to their families back home for altruistic motivations. This may be true. But first let us review how remittances are used by the recipients.
While the government is severely constrained in its ability to assist the needy, the expatriates subsidise the maintenance of a broken social safety net in Pakistan. In most instances, remittances pay for rents, medicines, grocery bills, marriage expenses and other similar needs of low-income households who are unlikely to receive any meaningful support from the government. Similarly, remittances pay for tuition fees for children who would not be educated otherwise because of missing or inadequate public sector schools. The remittances therefore plug the gap in social spending in Pakistan.
Pakistanis have empowered thousands of bureaucrats and legislators at the federal, provincial, and municipal levels to disburse $5.2 billion in social spending. If one were to factor in overheads (wages, rents, fuel purchases, etc.), the services reaching the needy may value much less than $5 billion. On the other hand, $11 billion in remittances do reach the intended recipients with very little overhead. Shouldn’t we then consider empowering the stakeholders (the expatriates) whose social spending in Pakistan exceed that of the public sector social spending by the federal government.
It is unlikely that Pakistan’s political and military elite will allow expatriates any formal role in decision-making. Denying expatriates the recognition they deserve, however, will be a big mistake. Other countries with much smaller expatriate contributions have done more to recognise contributions of their respective expatriate communities.
Consider India where Non-resident Indians (NRIs) are courted by the federal and state governments. This is being done despite the fact that remittances account for merely 4 per cent of the Indian GDP whereas tax revenue accounts for 18 per cent of the Indian economy. In Lebanon, remittances contribute more than what the government collects in taxes while in Philippines remittances rival the total tax revenue.
The forecast for remittances for the current fiscal year is around $14 billion. This amount may grow even further at a faster rate in the next few years. What then should the expatriates do to better serve their motherland? I believe Pakistani expatriates have an opportunity to launch a development bank and use remittances to generate additional revenue to invest in development projects.
At present, the remittances flow to Pakistan through myriad channels, such as Western Union, who charge a fixed fee plus an amount in proportion to the funds being transferred. The expatriates may want to launch a credit union or a development bank that works with the existing banks allowing expatriates to electronically transfer their funds from their existing bank accounts to the development bank, which should charge considerably lower transaction fees than the competition and encourage expatriates to remit large amounts with disbursement schedules spread over months. The bank will be responsible for holding the funds and disburse as per remitters preferred schedule. As per remitters’ instructions, the development bank will transfer funds to existing retail banks, credit unions, or other financial institutions in Pakistan located close to the recipient.
Since the development bank will charge significantly lower transaction fees for remitting large amounts, the remitters will opt for the bank than other outlets, such as Western Union. For the time that the funds reside with the bank, an opportunity arises to invest those funds in capital markets. The profits generated through such short-term investments will provide capital, which the bank may invest in development projects, such as water supply schemes, etc., by extending interest free loans to communities.
There is still the question of who should decide what projects to invest in. Professor Madhav Badami of McGill University suggests that once the funds for development projects are available, NGOS, municipalities, hospitals and similar institutions should be invited to submit proposals for funding. An international committee of independent experts can adjudicate on the proposals.
Writing in the New York Times in March, Ngozi Okonjo-Iweala and Dilip Ratha of the World Bank floated the idea of Diaspora bonds, which developing countries can sell to expatriates to raise capital for development. They also show other arbitrage opportunities where banks in developing countries can create foreign currency assets by receiving remittances in foreign currencies, but paying out in local currency. The foreign currency asset could then be used as collateral for borrowing in overseas capital markets.
Given the lack of trust in state and its functionaries, Diaspora bonds may not work in Pakistan. However, an independently operated financial institution that serves expatriates’ needs by significantly lowering their transaction costs, and at the same time uses remittances to generate investment capital for development projects in Pakistan, may be more attractive to expatriates who could then be directly involved in alleviating poverty in the neighbourhoods they grew up in.
Murtaza Haider, Ph.D. is the Associate Dean of research and graduate programs at the Ted Rogers School of Management at Ryerson University in Toronto. He can be reached by email at murtaza.haider@ryerson.ca
The views expressed by this blogger and in the following reader comments do not necessarily reflect the views and policies of the Dawn Media Group.
I wonder why our State Bank doesn't consider that foreign wages remitted by our citizens labouring in a foreign economy is actually a wind fall for our country and the state is the ultimate beneficiary. We en-cash these foreign funds without any effort and in return the Bank doesn't officially recognise any currency for direct rupee conversion other than yen, pound, dollar, sterling, mark or frank despite the fact that most remittances are made from riyal or dinar ! It is therefore futile to suggest unity among expatriates or shower them with suggestions on best social spendings or how to reap the maximum out of their remittance. Our state bank needs to recognize all international currencies for direct rupee conversion and save expatriate Pakistanis from double exchange loss !
Two things:
Firstly, Pakistan needs to strengthen the Judiciary so all people and especially the Expats feel safe and secure to interact and operate in Pakistan.
Secondly, the Expats need to get highly organised to be seen as a uniform and lucrative stakeholder in Pakistans future.
Everything else will flow from this.
The vast majority of expatriates prefer to become citizen of their host country and get invoved in duties and responsibilities as a citizen of the new country. It is very difficult to put your two feets on two boats. However, sending money to their relatives in Pakistan, even without participating in other duties as citizen of Pakistan, is great help to Pakistan.
I don't understand, why people are saying that remittances are not going to bring any change. Remittance receiver are not going to keep this money, they are going to use it. Very basic economic rule, when money circulate in the market, increase the demand of the commudities, which obvesily increase the production of commudities. Poduction bring in more jobs; some people get the benefit directly form the remittance and some get the benefit indirectly
We need to get our house in order first and collect Tax from those at home before begging those abroad. Expats are not a charity!
I don't think expats are interested in dirty politics, providing voting opportunity outside Pakistan is a better start. As an expat, yes we remit to Pakistan for our relatives but also a substantial amount goes into charity. Having said that, we don't want anything in return as we spend money in Pakistan at our own free will. Our heart bleeds as much as anyone else at the condition of Pakistan and only wish to have a system that may improve the condition of Pakistan.
In this regard the banks/ financial institutions can play a part to channel the funds in a more constructive manner but trust needs to be built to encourage people to invest. Additionally the confidence in stock market/ bonds/ other forms of investments can only increase if economy of the country improves.
You cannot expect the diverse expat community which is so widely dispersed to form a financial institution as this is not practical. The NGOs are doing a good job by approaching the expats in various countries and channeling the funds for various calamities we have seen in Pakistan.
The money comes with a price.A large %age may come from Middle East with import of culture.Part of the mess in Pakistan may be due to this problem.
On the other hand many educated Pakistanis in US,Canada,UK etc have helped in improving education in Pakistan.
It is a double edged sword.No one wants to leave the motherland.Let us improve the conditions in Pakistan so that Pakistanis don't have to leave their motherland.
At this stage Pakistan should create a process through which the Pakistani scientists who are abroad should be able to transfer their knowledge to eager students in Pakistan.They should create processes to facilitate Pakistani doctors from abroad to provide needed medical care.
For the last ten years I have tried to stress VC of a university in Pakistan to have a pool of alumni come for regular lectures without success.
I like your suggestion of "alumni come for regular lectures" – this should help broaden the horizon and get a first-hand account from expats/non-residents Pakistanis.
The question is what if the more serious students start to feel that their chance for self-actualization (i.e. the possibility of having a sense of self-accomplishment in life) is better outside the country? Such lecture possibly need to be balanced by eminent local achievers – especially from the business community (not so much from the bureaucracy/military/political establishment. The emphasis should be more on sharing experience and learnings – less on moralizing and lecturing. And most importantly such people (sharing their knowledge/experience) need not be just of Pakistani decent. So roping in people traveling into Pakistan – businessmen, CXOs, journalists, authors, social workers, teachers/profs., scientists, marketing professionals, psychologists, artists….
I think we (expatriates) should seriously consider forming "Pakistan Expatriates Associations" in every country. These associations can coordinate to put pressure on the Pakistan Govt to use these remmitences to help fight poverty in Pakistan, for a smooth and respectful reception at the airports and Embassies to improve on the services it provides.We can also put pressure on the Govt to improve the Law & Order situation in Pakistan as it directly effects visiting expatriates. I hope the writer of ths article Murtaza Haider may like to comment.
Nice article.
I do feel a need to comment on one sentiment expressed by the author: “Despite the remarkable contribution to social spending in Pakistan, expatriates have no real representation on any political and economic platform in Pakistan.”
Expats normally send money to their Pakistan resident relatives. If they had no relatives the chances of them sending money regularly is slim. Sure they may send donation and help in the case of national emergencies – but that amount may not match the regular remittances to relatives.
Thus the presence of relatives inside Pakistan is as important as the presence of non-resident Pakistani's (outside of Pakistan) for getting these remittances. Another (more controversial) way of looking at this: expats love their roots and their country of birth, but they send money regularly not for the country but for the relatives. Their representation on any political and economic platform in Pakistan is thus via their relatives.
Now if non-resident Pakistanis can potentially improve the quality of process/polity/policy then that is a different reason to provide them with more say.
I don’t mean to belittle their contribution or motive or the benefit to Pakistan. Any positive contribution for national building/development is always welcome. Just my two cents to put things across more objectively.
FYI – I am a nonresident Indian ‘expat’.
impressive work by the writer! i think a union of expatriates should be formed that could present these valuable suggestions to the government.
This idea should be materialized at the earliest.
The author writes “One can propose reserved seats for expatriates in Pakistan’s Senate or the Parliament, or permanent representation in the Planning Commission or the State Bank to secure their sustained contributions to the economy. If this proposition seems farfetched, then expatriates may consider launching a development bank or a credit union to gain more control over remittances to Pakistan, which are expected to hit $14 billion next year.”
My impression Is the author is proposing those who pay more taxes (or make greater financial contributions) to Pakistan should have more say as to how money should be spent.
Unfortunately a “Riksha Wala” who may not be paying a penny as tax and a “Maha Raja” who may be paying one Lakh Rupees as tax have equal rights of "one man, one vote". The “Maha Raja” does not have a say as to how the government should spent his contribution to the country. Neither he has a reserved seat in the Parliament. I do not understand how the expatriates could be granted special privilege for their contributions in working of government.
What I strongly believe is all expatriates living outside Pakistan should exercise their rights in federal and provincial electoral process of Pakistan as citizens of Pakistan.
Excellent Idea! Float this around!
The question is why is Pakistani taxes as a percent of GDP low? Is it because tax rates are low or because people don't pay taxes? Looks like more emphasis should be placed on tax collection also.
Murtaza; It's so good to know that I am not the only one who had been talking on these lines for years. An expatriate for almost 20 years I fully agree with you and you have floated some great ideas. I had a similar discussion on my last trip to Pakistan (couple of months ago). Five members of our family traveled to Pakistan to participate in 3 weddings, spending almost $20,000. Another dimension to this is the amount expatriates spend on each visit including the revenue PIA earns form them. Great article.
So some of our politicians making trips to Dubai every month and spending thousands of dollars their should now ask for representation?
The author makes some valid points reg facilitation etc but remittances are seriously overvalued specially if you compare their actual (direct) benefit versus their absolute value. The plugging of social spending gap argument can be valid for any business operating in the country and is not just limited to remittances.