Growing reliance on remittances
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.