Rise in remittances

It is a matter of great satisfaction that overseas remittances continue to grow, albeit slowly, during the first four months of the current fiscal year. According to the latest data released by the State Bank, overseas Pakistanis remitted dollar 5.275 billion during July-October, 2013 as compared to dollar 4.964 billion in the corresponding period last year, showing an increase of dollar 311 million or 6.27 percent. The monthly average inflow of remittances thus reached dollar 1.318 billion as against dollar 1.24 billion in the same period of the previous year. Major contributors to these remittances were Saudi Arabia from where Pakistan received dollar 1.459 billion, followed by the United Arab Emirates (dollar 1.060 billion), the United States (dollar 850 million) and the United Kingdom (dollar 807 million). Based on this trend, total remittances during FY14 could be about dollar 16 billion which would be a record level.
An increase in home remittances, averaging about dollar 1.32 billion a month, is, of course, a very favourable development for the country, especially at a time when current account balance of the country has surged to dollar 1.2 billion during the first quarter of the current fiscal year, Pak rupee is depreciating and Pakistan is losing its foreign exchange reserves rapidly. In fact, overseas remittances during the year so far have exceeded the level of foreign exchange reserves held by the State Bank at present which means that in the absence of this source of inflows, foreign exchange reserves of the country would have evaporated by now and Pakistan would have been facing the risk of insolvency. Also, it needs to be noted that home remittances are unrequited transfers and, as such, do not add to the debt burden of the country and could be freely used. However, even the present healthy trend in home remittances is not enough to fully offset the negative impact of trade and services accounts on the current account balance which is the true indicator of assessing a country's external sector position. In desperation and in order to avoid the possibility of default, country's economic managers have negotiated another programme (Extended Fund Facility) with the IMF worth over dollar 6 billion which was probably the only way to keep the country solvent but such an approach cannot be regarded as durable solution of the problem and could lead to higher debt servicing burden in the years to come. In fact, the present arrangement with the IMF with very strict conditionalities had to be essentially negotiated to pay instalments due to the SBA facility of the Fund availed by the country earlier. Keeping all these factors in view, it is of utmost importance for the country to increase the level of exports by a considerable margin in order to achieve a sustainable position in the external sector. This is particularly so because of a widening gap in the external sector accounts and uncertainty regarding the continuity of an upward trend in home remittances. Market determined exchange rate of the rupee and the grant of GSP Plus status in the EU market with effect from 1st January, 2014 could be very helpful in increasing the level of exports if the country could generate enough exportable surpluses through improving energy supplies, increasing investment, ensuring good governance, ending militancy and removing other constraints. At the same time, however, the need for ensuring the present upward trend in home remittances cannot be overemphasised for obvious reasons. For this, Pakistan Remittance Initiative (PRI) launched jointly by the State Bank, Ministry of Finance and Overseas Pakistanis in April 2009 to facilitate and support faster, cheaper, convenient and efficient flow of remittances needs to be reviewed and improved further, the rate between official and unofficial exchange rate of the rupee needs to be narrowed to the minimum and attractive investment opportunities in Pakistan need to be offered to the expatriates to try to maintain the present trend in overseas remittances. Also, alternative strategies must be worked out in case home remittances are unable to maintain the present trend. Such an effort needs to be undertaken on a fast track basis since the country is rapidly losing its foreign exchange reserves despite the financial support of the IMF, other multilateral institutions and bilateral donors. It may be pointed out that Pakistan has already failed to meet the criterion of Net International Reserves (NIR) agreed with the Fund under the EFF facility at the end of September, 2013. More setbacks could derail the programme and pose serious problems to the economic management of the country.