The remittance story

Remittances are up as usual and every sceptic is pretty sure that the PRIs endeavours are only partly responsible for the continuous surge in worker remittances. The real reasons behind rising remittances, they claim, are either insidious, exogenous or a few macroeconomic factors.
The insidious factors mainly revolve around the whitening of black money, including the return of exports proceeds held back in foreign countries. The motivation behind this is the fact the authorities do not question the source of the money, nor do they tax it.
The exogenous factors revolve around the 9/11-effect - that implies that Pakistanis around the world are being bashed or are insecure, whereas the economic factors include rising domestic inflation, currency disparity, and interest rate differentials.
But here is a bit of a myth buster. PRI officials reveal that the transaction size of 85 percent of the amount pouring in is less than $1000 - with the average size hovering around $650-700. If that number is true - and as such there is no reason to mistrust it, for that would necessitate disbelief over all government bodies - then plenty of arguments are subsided.
The whitening of money theory doesn make a lot of sense given such small transaction sizes. Even if it is true, the quantum would likely be much smaller than usually feared.
Second, the fact that banking penetration has increased in recent years, somewhat dispels that view. "Two years ago, only 30 percent of the remittances sent through banks used to be channeled to the beneficiaries direct bank account; today that number is about 60-63 percent," one PRI official told BR Research.
Similarly, the 9/11-effect is visible only in remittance inflows from the US. But then historical trends in global remittance-flows suggest that the rise is a global phenomena regardless of whether its high-income, developed economies or countries like Nepal, India, Philippines, Bangladesh that aren stigmatized by terrorism.
It could then be the interest differential factor. But had that been the case, the remittances trend line would have shown at least some cyclical movement, which doesn seem to be the case. A similar disconnect appears between the rupee-dollar parity and the remittance flows.
Rising costs of living in Pakistan could then be a factor behind the phenomenal jump in the last two years or so. However, given nearly 40 percent depreciation of the rupee, the size of the transaction need not be upped to meet the increase in prices.
Still, considering that the sceptics camp boasts some big names, who enjoy a strong reputation in their respective fields, perhaps it is time for PRI folks to share their data and their experiences to help develop a consensus view for better policy formulation.