With Imran Khan as the Prime Minister of the country, workers' remittance is an interesting data-point as a lot was expected in terms of Khan's popularity and support among the overseas Pakistanis. A one liner: the love did not translate into any gigantic increase in inflows in FY19. The year-on-year growth in remittances for the year remained in single digits - 9.68 percent.
But it has not been gloom and doom for remittances. The inflows have been crucial during the last fiscal year as slow growth, lifeless exports, depreciating currency and falling reserves have hit the economy hard. Growth during the government's one year in office was largely seen coming from UK, USA, Malaysia, and primarily due to the religious months and festivities. Also, the increase in remittance from these countries during the year is attributed to better economic growth in the West, increase in the number of people going to Malaysia for work, and efforts made by Pakistan Remittance Initiative (PRI) and SBP.
And despite the declining stock of immigrant workers in key remittance corridors like Saudi Arabia, UAE and the other GCC countries, remittances from these countries in FY19 have depicted year-on-year growth versus a decline in FY18 due to increased PRI activity; the recent incentive schemes announced for the exchange companies, government's crackdown on hawala/hundi and corruption - evident from thinning spread between kerb and inter-bank currency rates- and awareness campaigns in the labour camps in these countries.
In relative terms, PTI's first year has also been better than PMLN's lukewarm tenure for remittances, which might suggest that Khan's charm did have a share in the growth - Remittances grew at a CAGR of 17 percent between FY08-13 and they slowed down to 7 percent in PMLN's time from FY13-18.
FDI abysmal On the other hand, there is not much of a good news on the foreign direct investment side. For long, the country has missed the FDI goals and is marred by lack of diversification and lack of aggressive policy stance. The previous government was lucky that CPEC was signed and foreign inflows started pouring in from China in sectors like power and construction.
PTI's first year performance spelled bane on FDI. With China Pakistan Economic Corridor, the previous government had put all eggs in one basket. CPEC has been a hallmark for investment in infrastructure and energy sector particularly power. And now that the early harvest projects are complete or near completion, the slowdown is dragging overall FDI numbers. In FY19, not only the inflows from China have been down by 47 percent year-on-year, outflows have risen by five times as well leading to a 50 percent year-on-year decline in net FDI for the year.
Focus on CPEC has been accompanied by waning investment in other sectors where some sectors like telecom and financial businesses have hit saturation while others have been unable to attract foreign investors' as well as the government's attention. Some other factors under the PTI government like uncertainty over the economic policy, political instability, delay in going to the IMF, and depreciating currency have also kept investors sitting on the fence.
There is a clear lack of seriousness from the government is correcting the foreign investment situation in the country. It might rightly have decided to shift focus to export oriented areas and Special Economic Zones (SEZs) under CPEC to attract FDI, and FY19 data does show that the share of manufacturing sector has increased during the year; but problem is the shrinking pie.
What is even more alarming yet ignored most of the times is the increase in profit repatriation. Now FY19 might have seen a decline in profit repatriation of FDI, but it doesn't mean that the investors are reinvesting earnings in Pakistan. It is primarily because the FDI for FY19 is dreadfully low - so much so that FDI net off profit repatriation stood at only $159.7 million for the entire fiscal year against $1.462 billion in FY18.
The way forward While remittances grow with increase in economic growth - where factors like better education of migrants, better employment opportunities for local labour force at home as well as abroad, better dividend from investment in human capital pay off in the long run - the relationship between economic growth and FDI is a little complex. Empirical evidence from "Role of Foreign Direct Investment and Remittances in the Economic Growth of Pakistan" by Fatima Shahid, Sarfraz Hassan, KhudaBakhsh and NaziaTabasam also suggests that 'the host country should fulfill certain prerequisites and conditions e.g. financial development, macroeconomic and political stability, better law and order situation, educated and skilled labor force and supportive infrastructure for FDI to be positively related with the economic growth.'
While it is important to explore new corridors, PTI needs to strengthen and revive the traditional corridors by matching the skills requirement with changing job demands in these countries as that's where the juice is. After all, skills development was something that they vouched for in their agenda. But call it wrong timing, or the state of the economy, or the overestimation of investment by PM Imran Khan, or halfhearted promotion attempts, the launch of diaspora bonds - Pakistan Banao Certificates also spelled out in PTI's 100-days agenda before election to tap diaspora savings to bring much needed foreign exchange has not hailed success. There is a need for a sustainable solution, more than such short or one-time solutions.
At the same time, much more effort is needed on the FDI front. FDI right now is less than one percent of the country's GDP. Not only is there a need to diversify in terms sectors and countries, changes in taxation, energy, skills, and sector-specific policies along with reinvigorating Board of Investment to do its job of FDI promotion and encouraging foreign investors to reinvest in the country must be undertaken at priority if PTI wants to revive foreign investment in the country.
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