In search of patriotic capital

Now that change is in the air, will the feel-good factor attract some low-cost patriotic capital? The PTI’s electoral victory is said to have pleased the Pakistani diaspora. Will the diaspora now stand up, please? While their remittance proceeds are welcome, another way they can help is by investing their surplus dollars, pounds, riyals and dirhams back in their home country.

But how much dough do the diaspora really have?

It is difficult to estimate how much money the diaspora is sitting on. Already, within the ~$20 billion p.a. remitted to Pakistan, overseas workers are said to have a large share. But a veteran of local and overseas financial markets told BR Research that somewhere between $10 and $15 billion are saved by overseas Pakistanis in their host countries every year, with most of that money lying in bank deposits.

That informal estimate rhymes with another estimate made by the World Bank on this subject. In a September 2014 World Bank note, titled “International Migrants’ Savings and Incomes”, the Pakistani Diaspora’s overall income was estimated at $59.3 billion p.a. and savings at $11.9 billion p.a. Growing by a nominal 5 percent every year, those annual savings would have gone above $14 billion.

If the annual savings figure is indeed around $15 billion, it would be quite an achievement to mobilize even a third of that sum. That would yield about $5 billion. Clearly, it’s not much, compared to the forex requirements this fiscal year of more than $25 billion. But it’s still something.

One of the avenues to channel diaspora savings is the savings certificates. The Central Directorate of National Savings is already in an advanced stage to launch ‘Overseas Pakistanis Savings Certificates’ (OPSCs). The OPSCs were to be launched earlier in May in the GCC region, with its head honcho expecting to catch up to a billion dollar in the first year of launch. The new finance minister already has the homework done for him (for launch in the GCC region), so this shouldn’t take much time.

But it is the ‘diaspora bonds’ that may excite the overseas Pakistanis more. These bonds can be linked to nation-building projects in areas like social-sector development, infrastructure development, debt retirement or security enhancement. Diaspora bonds are better suited to enlist a patriotic sense of participation and patience needed to resolve short-term financial crisis as well as fund long-term projects.

Building and maintaining the trust of non-resident Pakistanis would require that projects selected are specific; the institution(s) handling the proceeds is deemed credible and competent; and transparent avenues exist for sharing regular progress and feedback. What can further boost diaspora interest is if they are allowed to vote and run in the elections.

But there could be other factors, too, impacting success. A sense of nationalism and trust in the political system has helped Israel – and India – raise diaspora bonds multiple times. But it is just as easy to overestimate the generosity of expats. For instance, the Greek diaspora, at the height of 2011 Greece financial crisis, reportedly didn’t find generous the terms of the $3 billion bond issue.

In the end, Pakistan’s next government may have to look at a collage of financing options to meet the external-sector requirements. Diaspora bonds – and savings certificates – should be among those. A better approach would be to do the required homework and issue such securities on an “annual” basis (in the interest of development finance), rather than having an “opportunistic” issuance for emergency BOP support.