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If Pakistan has to borrow in foreign currency to manage its forex imbalance, why not allow overseas Pakistanis to move their private pension savings here?
The new government is considering a range of measures to manage the pressure on Pakistan’s forex reserves, including increasing exports, borrowing from supranational lenders, chasing illegal outflows from Pakistan and issuing bonds to overseas Pakistanis.
But there is one idea that is going unnoticed: attracting private pension savings of overseas Pakistanis.
High income Pakistani professionals working in developed countries have compelling tax incentives to invest in private pension plans. Employers also contribute to these private pots.
There are many such pension pots of overseas Pakistanis growing over the years.
Some of these overseas Pakistanis may wish to help the new government bring the promised tabdeeli to build the "Naya Pakistan".
Putting their money where their hearts are, they could be willing to move their pension pots to Pakistan.
This creates a win-win opportunity for both overseas Pakistanis and Pakistan.
Read next: What will make Pakistan ‘naya’?
The idea is simple. Enable the overseas Pakistanis to move their private pension pots to Pakistan. Consider the example of Qualifying Recognised Overseas Pension Scheme in the United Kingdom.
These are pension schemes outside the UK that meet certain requirements set by Her Majesty’s Revenue and Customs (HMRC).
The purpose of such a scheme is to facilitate those living in the UK who intend to retire abroad having built up a UK pension fund.
The criteria used by HMRC are not onerous and seek taxation and regulation similar to that applied in the UK. The UK government provides a list of recognised schemes from more than 20 countries, including India and Kenya.
One name that should have been on this list but isn’t: Pakistan.
Note that Pakistan has a full scope bilateral dual-taxation treaty with as many as 65 countries.
There is a growing segment of voluntary pension schemes in Pakistan, which includes the one provided by the state-owned National Investment Trust.
The regulatory regime of local pension schemes is in line with established international practices.
Building further upon these blocks, there is no reason why Pakistan cannot enable the movement of pensions pots of overseas Pakistanis who consider Pakistan their second home.
Related: What’s behind the jump in remittances?
A key constraint on investment of these savings is that it would be difficult to provide exposure to riskier asset classes, e.g. equities in the currency of origin.
That implies perhaps only the fixed income part of the portfolios could be brought here that would have to bear concentration risk.
To protect them from the feared depreciation of the Pakistan rupee and the general economic woes of Pakistan, the government could offer the savers government-backed fixed income securities denominated in some of the major foreign currencies.
These securities must offer competitive returns, at least as much as, if not more than, the returns available for taking similar sovereign credit risk.
The arrangement should be such that annual expense ratio should be below what is available to the savers in the host country.
Add to it any extra incentive the government may wish to offer for helping Pakistan in its hour of need.
Conversion of their forex pension savings into rupees would be an option these Pakistanis may exercise whenever they wish.
The money could eventually help finance something like a retirement home in Pakistan.
Working professionals who have returned to Pakistan after living abroad for several years, such as these writers, understand that the possibility of returning to Pakistan, no matter how remote, is hardly ever off the cards.
Getting these overseas pension pots invested into government-backed fixed income securities in Pakistan is borrowing from overseas Pakistanis.
It is superior to borrowing from international lenders and issuing international bonds.
First, it would have no strings attached. These Pakistanis will not impose any structural adjustments on their countrymen.
Second, this would not be a one off transaction, but a stream of long term capital.
Third, the money may never leave Pakistan if a saver decides to convert and invest it here.
So, how much forex inflows are we talking about? We conducted a small, informal survey of friends and family working in the UK.
It seems that those paying high income tax rates with more than 10 years of pension contributions have accumulated well over £100,000.
That is, the size of available funds could quickly run into several million dollars from just one country.
Remember that this is a part of a large group of people that sent home just about $20 billion in the last fiscal year.
Now read: Why Pakistan is back in trouble with balance of payment
The overseas Pakistanis willing to transfer their pension pots would do so if certain conditions are met.
A key condition is that there must be a credible protection against the kind of breach of trust that happened with forex deposit holders in 1998.
Other expected conditions are minimal transition cost and hassle and the right to move the pot back to the host country.
Given Pakistan’s desperation for forex inflows, attracting pension pots of overseas Pakistan could be a useful addition to the portfolio of measures being considered by the new economic managers.
If we are going to borrow anyway, why not borrow from our own who want to see Pakistan overcome its economic challenges?
Are you researching economic reform in Pakistan? Share your insights with us at blog@dawn.com
Shahid Karim is a chartered accountant with gold medal from the Institute of Chartered Accountants of Pakistan. He previously worked with JP Morgan Chase in London as controller finance and PricewaterhouseCoopers. He tweets @mkshahidkarim
The writer is a former CEO of the Audit Oversight Board, Executive Director at the Securities and Exchange Commission and content director at CFA Institute (London). He tweets @Usman_Hayat
