PAKISTAN’S reliance on remittances keeps growing even though exports have started showing a double-digit increase and prospects of foreign investment inflows look brighter.

During nine months of FY18 (July 2017-March 2018), overseas Pakistanis repatriated $14.606 billion, or remittances around 3.5 per cent more than a year-ago of $14.105bn.

That remittances are gradually catching up with Pakistan’s exports is evident from the fact that the country’s exports of $17.1bn in nine months of FY18 were only $2.5bn more than the remittances. It seems our reliance on foreign exchange sent back home by overseas Pakistanis keeps growing.

If exports don’t get a big boost during this quarter, the gap between remittances and exports should remain more or less the same at the close of the fiscal year in June.

“On a monthly basis, a mere $200 million plus difference between remittances and exports is going to stir a big debate in the future, particularly with reference to the cost of incentives for pushing exports and the cost of promoting remittances,” says a former deputy governor of the central bank.

“Corollary political debates will also heat up about how we have been treating overseas Pakistanis. So far they haven’t been able to exercise their right to vote from their host countries.” (On the instructions of the Supreme Court of Pakistan efforts are underway to ensure that overseas Pakistanis do exercise this right in the upcoming elections).

That remittances are gradually catching up with Pakistan’s exports is evident from the fact that the country’s exports in nine months of FY18 were only $2.5bn more than the remittances

A 9m-strong Pakistani population spread across the world provides a stable and, similar to exports, a non-debt creating source of the country’s forex earnings.

During this decade, remittances’ flow has grown speedily after the world came out of the great recession of 2007-2008. From about $9bn in FY10 our home remittances more than doubled within seven years to $19.3bn in FY17. That shows the potential of growth in remittances.

This Growth is coming from a qualitative increase in the professional and skill mix of those who go overseas, the efforts made under the platform of the Pakistan Remittances Initiative (PRI) to facilitate remitters, and technological advancement of banks in handling remittances.

Besides, the State Bank of Pakistan (SBP) has also succeeded in collaborating with the Federal Investigation Agency (FIA) and other state institutions in limiting inflows of remittances via informal channels known as hundi and hawala.

Asaan (Easy) Remittance Account and m-wallet scheme, both launched for facilitating inflow of remittances through banking channels, may give remittances a further boost, the SBP says in its recently released second quarterly report of F18.

This will be no mean feat in the backdrop of a declining trend in remittances from Saudi Arabia, traditionally the biggest source of remittance income for Pakistan.

The SBP report has listed several factors that are responsible for the downward trend in remittances from the kingdom.

These include (1) imposition of a tax by Saudi authorities at 100 riyal per person per-month on non-earning members of immigrant families in July last year, and a 100pc increase in it from January this year (2) levy of a fee of 400 riyal per employee on recruitment of foreign employees in companies operating in the kingdom and (3) decline in hiring of Pakistani drivers in the kingdom after the lifting of ban on female driving there.

Besides, the cost of living of Pakistanis in Saudi Arabia and also in the UAE has gone up after the imposition of a value-added tax of 5pc in both countries which is also applicable on most wholesale and retail sales including food served in hotels and restaurants.

Meanwhile, overall export of Pakistani workers was already been on a decline (down 69pc from 839,353 in 2016 to 496,286 in 2017) maindly owing to a fall in the number of Pakistani workers going to Saudi Arabia and the UAE.

Although the situation seems to have improved somewhat this year in case of the UAE, the declining trend persists in the Saudi kingdom, according to officials of Bureau of Emigration and Overseas Employment. Pakistani worker’s export to the UAE is gaining momentum after the UAE decided to exempt them, for the time being, from producing a character certificate issued by district police officers.

Though these officials refuse to comment on it, a general complaint is that Pakistanis who want to work abroad have to pay a very high cost, more due to overcharging by recruitment agents than for any other reason.

In its 2017 report on remittances, the World Bank revealed (citing a joint survey of International Labour Organisation and the Global Knowledge Partnership on Migration and Development) that “a significant number of Pakistani construction workers in Saudi Arabia reportedly paid over $5,000 to recruitment agents, an amount equivalent to 20 months or more of earnings.”

“Efforts to reduce recruitment costs would require curtailing the abuses and exploitation by illegal recruitment agencies, cooperation with bona fide overseas employers, and stronger bilateral coordination between labour sending and destination countries,” the report recommended.

Tracing historical data, Asif Qureshi, executive director of a local capital management company points out that while remittances from GCC are declining (except for Dubai) those from non-GCC countries are rising at a healthy rate.

In his view multiple factors such as “higher workers’ migration to non-GCC destinations, dollar weakening against other major currencies i.e., GBP, Euro, etc. and reverse capital flight (especially from Dubai due to stricter global financial regulations) are behind these trends”.

Commenting on the subject Faisal Shaji, chief strategy officer at Standard Chartered Capital says “a lot of repatriation is coming after layoffs (of immigrant Pakistani workers) in the KSA” and a weaker rupee “is a sweetener for returned expatriates.”

During the past three years, Malaysia has emerged as a major source of remittances, partly due to increased manpower export to that country and partly because of greater checks on illegal handling of remittances from there as also from elsewhere.

In fact, remittances from Malaysia now constitute the sixth major source of inflows after the Saudi Arabia, UAE, UK, USA and four GCC countries combined (Bahrain, Kuwait, Oman and Qatar).

Published in Dawn, The Business and Finance Weekly, April 16th, 2018