Record remittances

Remittances received from overseas Pakistanis during 2009-10 have surpassed even the most optimistic assumptions. According to the latest data released by the State Bank, the country received a record level of remittances, amounting to $8.906 billion, during the outgoing year, as compared to the target of $7 billion fixed in the Annual Plan of FY10.
The remittances were not only higher by about $2.0 billion than the target, but also exceeded last year's record remittances of $7.811 billion by 14 percent. It was also encouraging that the amount of $841.44 million received in the latest month, ie June, 2010, was also the highest in the country's history, beating the previous record of $806.12 million set in September, 2009.
The monthly average of remittances during July-June, 2010 at $742.16 million was also substantially higher as compared to $650.95 million in 2008-09. Expatriates, located in almost all parts of the world, contributed to the increase, with the inflow of remittances in 2009-10 from UAE, Saudi Arabia, USA, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounting to $2,039 million, $1,918 million, $1,771 million, $1,238 million, $876 million and $252 million respectively, as compared to $1,689 million, $1,560 million, $1,736 million, $1,203 million, $606 million and $248 million respectively during 2008-09. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries in FY10 also amounted to $811 million, as against $771 million during FY09.
A steep increase in home remittances during 2009-10 is definitely very welcome news for the country. It is fortunate that when the country is facing acute problems in certain other major areas, home remittances have shown very healthy progress to bolster the foreign sector of the economy. Although, home remittances are not the only component of the current account, yet its position has, of late, become overwhelming in the external sector accounts of the country.
In fact, the amount received through home remittances is now almost half of the total export receipts of the country and their high level, during FY10, has undoubtedly contributed to a hefty reduction in the current account deficit of Pakistan. Needless to say that a huge improvement in the external sector account of the country in FY10, attributable in large measure to the inflow of record remittances, has also contributed to an all-time high-level of foreign exchange reserves of the country, now standing at $16.67 billion.
There is no denying the fact that without such a positive development, the exchange rate of the rupee would have depreciated much faster, pushing up the inflation rate still higher and making the lives of ordinary people more miserable. Also, investor sentiment would have been negatively affected and at some stage, there would have been question marks about the sustainability of the current position and solvency of the country.
While appreciating the contribution of home remittances in keeping the foreign sector in a reasonable state of health, authorities need to ensure the continuation of an enabling environment to gain maximum advantage from this source for the larger economic interest of the country. Credit in this regard is generally given to a joint initiative by the ministry of finance, ministry of overseas Pakistanis and the State Bank, called the Pakistan Remittance Initiative (PRI) launched last year, with a view to facilitating the flow of remittances through formal channels.
While such a co-ordinated initiative may have helped to increase the flow of remittances to a certain extent, the quantum jump, seen in the recent past, cannot be explained by this sole factor. In our view, market-determined exchange rate of the rupee, a crackdown on money changers and a stringent monetary policy have played a much more decisive role in channelising a higher level of home remittances through formal financial institutions.
While the impact of the first two factors is obvious, a stringent monetary policy has helped to increase the flow of remittances by keeping the domestic interest rates attractive, relative to the rates of return available in foreign countries.
There are also analysts in the country who are of the view that the global financial meltdown and large-scale unemployment in foreign countries should have exerted a downward influence on home remittances and only certain unexplained factors are responsible for maintaining the present upward trend. Some of them even go to the extent of attributing the steep increase in home remittances to the funding received from foreign sources to aid and abet terrorism in the country.
We have no way to either verify such accusations or quantify the impact of each factor on the level of home remittances, but could only propose to the government to monitor the situation very closely and devise an appropriate policy framework to ensure that the potential of this source to finance the current account deficit could be maximised. Every dollar of an unrequited transfer is welcome when the country is so much dependent on foreign aid and loans.