Surge in remittances
AFTER crossing $13 billion mark in fiscal 2012, home remittances are now equal to more than half of our total exports and have acquired special significance in the economy in the backdrop of low level of foreign investment.
In last five years remittances have shown a cumulative growth of 140 per cent and also exhibited a noticeable change in direction.
Pakistan now gets 61 per cent of total remittances from six Middle Eastern countries (Saudi Arabia, UAE, Kuwait, Oman, Qatar and Bahrain) and only 39 per cent from the rest of the world. Five years earlier only 45 per cent of home remittances came from these friendly Gulf nations and the remaining 55 per cent from other countries —almost half of which used to be generated in the US. (See table).
Officials of the ministry of finance and State Bank of Pakistan say sustaining a high growth rate is the key issue. “Scant foreign investment and uncertainty over foreign exchange inflows from other external sources has put this issue under a new spotlight,” says an official of Pakistan Remittances Initiative (PRI)—a working umbrella created in 2009 to boost remittances with coordinated efforts of the federal government and the central bank.
“Devising a strategy for maintaining remittances’ boom is also important because whereas volumes (of remittances) continue to expand we’ve seen a lower growth rate in FY12 probably due to large base effect.” In FY12 home remittances were up around 18 per cent whereas in FY11 the growth rate was as high as 26 per cent.
Whether we can sustain the average growth rate of remittances seen in last five years (a hefty 28 per cent) depend largely on two factors—economic growth in Saudi Arabia, the UAE, US and UK, the four host countries from where we get about 79 per cent of overall remittances and the possibility of increase in manpower exports.
Oil prices have eased as GDP growth in the US and China and other BRICS remains slower than estimated earlier. Economic growth in the eurozone has stalled and UK experienced its first ever double-dip recession (in two quarters ending in March 2012) since 1970s.
Naturally, growth in the Middle East too may slow down and that may affect remittances.
“We, therefore, need to reinforce our manpower exports to Saudi Arabia and the UAE and to other Gulf countries (Kuwait, Oman, Qatar and Bahrain) to ensure decent growth in remittances from the Middle East,” says an official of the ministry of overseas Pakistanis.
One of the reasons for very high growth in remittances from Saudi Arabia and the UAE is because hundreds of thousands of Pakistanis found jobs there in the last five years.. That is why Saudi Arabia is home to 1.7 million Pakistanis now, and in the UAE about 1.2 million Pakistanis are working in various fields of life. Pakistan Ambassador to the UAE Jamil Ahmed Khan recently informed a private TV channel that the UAE would soon import a large number of Pakistanis to be employed in under-construction and planned infrastructure projects there. In the last two years Saudi Arabia has hired thousands of Pakistani doctors and other medical professionals as the Arab kingdom is expanding healthcare facilities. Ministry of overseas Pakistanis officials say export of construction industry workers to Saudi Arabia would soon pick up in the wake of the expansion of the Masjid-e-Nabvi and amid continuation of large infrastructure projects including roads and bridges in major Saudi cities.
“So, we’re sure the rising trend in remittances from Saudi Arabia and the UAE would continue for some years if the two economies grow as much as projected earlier,” says an official of the Overseas Pakistanis Foundation. “Chances for growth in remittances from the US are also positive.”
Despite recession in 2008-09 and negligible export of our manpower to the US in the last five years, our home remittances from there grew at an average rate of 12 per cent. Bankers and executives of foreign exchange companies say that the growth trend may not be affected much because of lower-than-expected economic expansion in the US. The reason is that Pakistanis living there have
a higher annualised average income than that of an average American citizen, according to the 2010 statistics of the US Census.
Besides, low returns on savings and investment in the US markets, increased financial requirements of their families back home in Pakistan and depressed prices of the real estate here would continue to attract additional remittances from some half a million US-based Pakistanis.
The US is now the third most important source of our remittances whereas it topped the list till FY07. Saudi Arabia and the UAE
have now come on the top as they largely escaped ill-effects of the 2008-09 global recession. And their GDP expanded fast on the back of 2008 oil price boom in the first phase and then on recovery of global economy from the beginning of 2010 marked by then astonishing growth in China and India.
The UK has retained its fourth position among major countries, and remittances from there have also swelled three and a half times during the last five years. “There is a variety of reasons for this including our ability to export professionals and highly skilled workers there,” according to owner of an overseas workers’ recruiting agency. Like the UAE, the UK is also home to about 1.2 million Pakistanis “but currently we don’t see much demand for foreign workers in the UK because its economy is in trouble.”
But bankers say that remittances from the UK would keep growing at a decent rate because Pakistanis living there are coping up well with economic woes as they did in 2008-09. “Secondly, most of the UK-based Pakistanis send foreign exchange not just to support some relatives but to be employed in small businesses across Punjab and AJK and this activity will likely continue” says a senior executive of a big local bank.
“Besides, a number of banks have lately signed agreements with international money transferring agencies and this has boosted remittances through official channels. This too would keep up the remittances’ growth.”
The overall pie of our remittances is generally believed to be double the size of current volumes. The ministry of finance and the SBP are currently working on a formula to ensure that exchange companies also get incentives as given to banks for attracting larger amount of remittances. “If this is done immediately, I’m sure inflows would continue to grow the way they have grown so far,” says Malik Boostan Hoti of the Association of Exchange Companies of Pakistan.