Rising remittances

At a time when the economy of Pakistan is facing a number of tough challenges, home remittances continue to grow at a fast pace, giving a much-needed support to the foreign sector of the economy and keeping the risk of external sector default at bay. According to the latest data released by the State Bank, overseas Pakistanis remitted an amount of dollar 9.735 billion in the first nine months (July, 2011-March, 2012) of the current fiscal year, showing a very impressive growth of 21.45 percent or dollar 1.719 billion as compared to dollar 8.016 billion in the corresponding period of FY11.
A positive feature of this growth was that remittance from almost all the countries recorded increases of varying degrees during the year. The inflow of remittances during July-March, 2012 from Saudi Arabia, the UAE, the US, the UK, GCC countries and the European Union (EU) amounted to dollar 2.66 billion, dollar 2.14 billion, dollar 1.72 billion, dollar 1.13 billion, dollar 1.10 billion and dollar 273.43 million respectively against the inflows of dollar 1.82 billion, dollar 1.86 billion, dollar 1.49 billion, dollar 879.53 million, dollar 948.12 million and dollar 255.73 million respectively in July-March, 2011. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries, however, came down to dollar 710.38 million from dollar 760.42 million in the corresponding period last year. In the latest month ie in March 2012, dollar 1.142 billion was sent home by overseas Pakistanis, up by 8.54 percent, against dollar 1.052 billion received in the same month of 2011.
A sharp increase in home remittances is indeed a very welcome development for the country, particularly at a time when other components of the external sector account like the trade balance are worsening, putting a great deal of pressure on the current account of Pakistan. Also encouraging is the fact that home remittances continue to show a robust growth despite recessionary tendencies in some of the developed countries like the US and EU countries where employment opportunities and the earning potential of the expatriates were presumed to be shrinking. If the present trend continues, the amount sent by overseas Pakistanis may touch dollar 13 billion which would be a record level during a year. The jump in home remittances could be attributed to a number of factors but authorities of the country generally take credit for this growth themselves. They believe that "Pakistan Remittance Initiative (PRI)," a measure launched jointly by the State Bank, Ministry of Finance and Ministry of Overseas Pakistanis had been responsible for raising the flow of remittances through banking channels to the present level. However, such an assertion could only be partly true as factors like closing the gap between official and unofficial rates of exchange and overall uncertainty in some of the Middle Eastern countries could have also played a role in enhancing the level of remittances. Although it is hard to find concrete evidence, yet there is also a perception in the market that foreign funds may also be flowing to the country to finance terrorist activities and whiten tainted money. If this is true, the facts need to be verified and action taken accordingly to safeguard national interests.
It needs to be stressed, however, that favourable impact of home remittances on the current account, exchange rate, foreign exchange reserves etc can only be fully realised if other elements of the balance of payments also show healthy trends or at least do not behave so negatively so as to more than neutralise the positive impact of home remittances. Unfortunately, Pakistan is confronted with a situation which is not entirely satisfactory. During July-March, 2012, the trade deficit of the country has risen to dollar 16.10 billion as against dollar 11.29 billion in the corresponding period of last year, reflecting an increase of 42.57 percent. More worrying is the fact that exports during the year were down by 3.03 percent and have been falling consecutively for the last six months. It is clear that the rise in home remittances, though very impressive, has not been able to fully cover the trade gap and, as a consequence, the current account deficit of the country has been widening during the year. Therefore, while welcoming positive news on home remittances, it was also important for the country's economic managers to seriously analyse the factors behind the declining trend in exports and ensure that such a trend is reversed as soon as possible. Such an effort was necessary because home remittances cannot fully compensate for the negative impact originating from the trade account.