By Nusrat Khurshedi

The total remittances are now close to $6.5 billion and provide balance of payment support. These remittances are larger than the direct foreign investment (DFI) put at $5.1 billion for last fiscal and more than the multilateral assistance received by Pakistan.

But not much has been done to channelise the inflows into productive investment by overseas residents.

The overseas residents contribute to the social, political and economic development of the countries of their origin and remittances are considered as an important yardstick of overseas contribution. In China, overseas Chinese are an integral part of the current phase of Chinese economic development with over 70 per cent of China’s foreign direct investment contributed by them.

The total population of Lebanon is 3.5 million, whereas its overseas population is 14 million. Due to steady and decisive flow of remittances, the Lebanese government did not face any major economic crisis even after having huge trade deficits for a prolonged period. Moreover, remittances as source of financial flows are found to be more stable than private capital flows and to be less volatile to changing economic cycles.

However, the decisive turning-point came after 9/11 in the increase of remittances sent by an estimated 3-4 million overseas Pakistanis. Incidentally, Pakistan is now the fifth largest recipient and is categorised as one of the developing countries with a major stake in remittances.

The remittances’ share in total foreign exchange reserves helps to hedge against the exchange rate fluctuations arising from surging the import bill. Remittances are the second biggest source of foreign exchange earnings after exports.

Whenever, Pakistan faced critical shortage of foreign exchange, remittances provided the much-needed ‘breathing space’ for bringing about structural changes. The overseas Pakistanis bring home a variety of consumer goods and consumer durables like electronics helped by the government policies.

And most important, overseas Pakistanis contribute towards poverty alleviation. The recipients often depend on remittances for covering day-to-day living expenses. Remittances serve as a cushion against emergencies, or, in some cases, as funds for making small investments. However, overseas Pakistanis do not receive specific attention in the interim Poverty Reduction Strategy paper. There is no recognition of the vital role of migrants in the development of economy and society.

Even now the government can pay some special attention to the contribution of overseas Pakistanis. In this regard, the national and provincial governments may identify the needs for support and, on this basis, formulate and implement appropriate initiatives. For example, by facilitating sending of remittances, removing categorised regulations, provide training to support to returnees and/or their families and by providing information on local investment possibilities, especially at the time when foreign investment outlook is not so positive, mainly due to uncertainty on political front. In this respect, much can be learned from the experiences of other countries of the region.

Even the investment policy regime is mainly in favour of high skill/income overseas Pakistanis living abroad permanently, either in the industrialised or developed countries. There is little that is addressed to low skill, low income, temporary, mostly workers in the Middle East who provide a substantial amount of foreign exchange through transfer and re-enter the labour market in search of employment on their return. The government should announce an incentive package for such workers.

Along this, a more favourable scheme be devised treating overseas Pakistanis as a “renter-savers” or small-scale investors and devising reliable, investor-friendly mechanism and instruments which will allow them to invest in export processing zones, fixed income securities, industry (including sick industrial units) and trade or other types of enclave economic activities and in the capital market without exposure to high risk.

The government may also allow the overseas Pakistanis to establish their own housing society, urban or rural services and business, with supervision to ensure minimum standards. The self-help approach may be effective in reducing poverty. But again over the years, main concern of investors has been the security of their investment and assurance of policy consistency and the government should give them such security.