Remittances - a vital lifeline for the country

An interesting insight into the resilience of migrant workers is that the global financial crisis actually resulted in a small and brief decline in remittance flows to India in 2009, says an economist and the manager of the World Banks migrations and remittances unit. He further adds the crisis of 2008 affected the new migration flows from India, but most of the existing workers stayed put and stuck it out.
And interestingly the same can explain the remarkable resilience of remittances inflows in Pakistan. Pakistani migrant workers also saved on rents, cut consumption and continued to send money back home. Similarly like India, the rupee depreciation against dollar has helped and is helping till now.
During the 8MFY13, home remittances continued to show no signs of debilitating any time soon, and according to the data released by State Bank of Pakistan, they registered a growth of 7.47 percent YoY.
Though this might raise some eyebrows and crease some foreheads as the growth rate is not as propelling as 23 percent YoY for 8MFY12, what matters the most is how these foreign currency inflows have remained the lifeline for the countrys dismal economic progress and receding foreign exchange reserves.
Tim Harner, the director of World Banks Development Prospects Groups also agrees how the home remittances have remained a reliable and stable source of foreign currency in many poor remittances recipient countries amid the global slowdown.
Although initiatives are evident and banks constitute a major portion of the channels for legal transfer of formal remittances from abroad, the challenge of informal and illegal transfers is not privy.
Though the banks regained some of their lost share from 94 percent in total formal home remittance in FY11 to around 85-90 percent in FY12, some of these gains have been at the expense of the exchange companies losing grounds. These exchange companies have suffered huge decline in the size of foreign currency remitted through them.
However, an initiative with the coming of the new finance minister is one step forward and will be welcomed by the exchanges companies genuinely seeking to regain the lost shares. Accordingly, the decision for including the top exchanges to channel remittances will bode well not only for the exchange companies, but also for combating informal transfer channels.