Home remittances during July-November

We have continuously been stressing the need to keep a close watch and review periodically the trend in home remittances in our editorials. The latest data suggests that the time may have come to undertake such an exercise in earnest in order to ensure a sustainable outcome in the external sector. According to the figures released by the SBP on 13th Dec, the sharp increase in the level of remittances witnessed in the recent past has moderated during the first five months of the current fiscal year, with the added shock of a decline in November, 2011 as compared to the corresponding month of last year. In aggregate terms, overseas Pakistanis remitted dollars 5.24 billion in July-November, 2011 as against dollar 4.43 billion received in the same period last year, showing a growth of 18.33 percent. However, this growth, though impressive, was lower than 23 percent witnessed in the first four months of the current financial year. The figures for November, 2011 were particularly a cause of concern. At dollars 925 million, home remittances during this month were lower than 1017.9 million in October, 2011 and 926.9 million in the corresponding period last year. A moderation in growth during July-November, 2011 and a decline last month, albeit small, in home remittances has not hit the headlines but is important for a number of reasons. Of course, if this trend continues to persist or worsens in the months ahead, it could have serious consequences for the economy, particularly its external sector. The problem could be more acute if the debt crisis in the Eurozone and recessionary tendencies in some other advanced economies are not tackled effectively in the near future. Another worrying aspect is that stagnation in remittances could take place at a time when other sources of external finance are drying up. For instance, the trade deficit of the country has widened and Pak-US relations have worsened, leading to a reduction in bilateral and multilateral assistance and a marked shrinkage in foreign investment. The current account deficit of the country has already soared by 257 percent to dollar 2.1 billion during July-November, 2011 and, barring some unexpected developments, may widen further in the coming months. The mounting pressure on the external sector is already visible in the currency market where, within a small span of 40 days, the rupee has lost over 4 percent against the US dollar and there are reports that importers are booking dollars in the forward market at Rs 93 against the current price of between Rs 89 and Rs 90. The State Bank data shows that foreign exchange reserves have also slipped from their peak of over dollar 18 billion, indicating the shortage of the greenback in the market and reflecting the behaviour of the current account position of the country. It is not difficult to fathom the impact of the depreciation of the rupee on the price level and quality of life of the ordinary people. No less important will be the impact of a depreciating rupee on the level of debt servicing of the country in rupee terms, especially in a situation where the fiscal position is already under a lot of strain. Let us hope that the latest phase in the behaviour of home remittances is temporary and there is a resumption of the sharply rising trend soon, but it would help if we could take several steps to expedite such a trend. For instance, Pakistan needs to impart the right kind of training to its manpower required abroad and continue to develop friendly relations with the labour importing countries. The law and order situation has also to be improved and political uncertainty reduced in order to induce Pakistanis working overseas to remit their savings to their home country without any apprehensions. However, it needs to be stressed that in the medium to long-term, efforts must be made to increase the country's exports and attract a much larger level of foreign investment for sustainable position in the external sector. We say this because the level of remittances would always be largely determined by exogenous factors over which we have no control. Copyright Business Recorder, 2011