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Attracting remittances – Trend to be continued

Published on 12th May, Edition 19, 2014


According to World Bank, Pakistan becomes the seventh largest recipient of workers remittances in 2013, with net inflows of about $15 billion. In the first nine months (July-March) of the current fiscal year (FY) under the leadership of Prime Minister Nawaz Sharif government, it has received about $11.6 billion in remittances, up 12 percent from $10.354 billion in the same period of last year. The inflows from all the traditional sources including Saudi Arabia, UAE and the United States have increased. Pakistan received $13.9 billion remittances in FY13. If the pace continues, the country could expect up to $15.5 billion at the end of the current fiscal year.

This trend showed a promising picture, that overseas Pakistanis showed its confidence to present government and willing to help in their development projects. Remittances has multiple effects. It is estimated that 10 percent increase of remittances in the country’s GDP can lead to a 1.2 percent decline in poverty. The remittances are the backbone of economy, till 2012 remittances contribute about 6 percent of Pakistan’s GDP. The ever-increasing remittances have given great support to the sharply falling foreign exchanges reserves after paying the International Monetary Fund loan to the present government. Last one year remittances help the government in various ways, by keep paying back its debts, support the weakening exchange rate and build the reserves.

Further increase in remittances government needs to tap this opportunity with policies, strategies and incentives.

It is estimated that 50-60 percent of remittances are typically spent in current or domestic consumption and only about 10 percent goes into investment. Means, at present, only a small percent of remittances are used for savings and what is termed ‘productive investment’ for e.g., income and employment-generating activities such as buying land or tools, starting a business and other activities with multiplier effects.

At present many developing countries are trying to tap remittances potential by introducing various kinds of bonds for development purposes. India and Nigeria have recently moved into this new area of rising finances for infrastructure development. India is the largest recipient of workers remittances, with $72 billion inflow and Nigeria is at fifth place with $21 billion in remittances.

With the overwhelming response on Euro Bond, government plan to introduce diaspora bonds for overseas Pakistanis in dollar denomination, which will be repay in local currency for a few years. By this, government can capture the vast network of middle class overseas worker who send their earning back home for the sustenance of their families, by introducing saving bonds in foreign currencies. Even overseas Pakistani staying in Europe and North America, who keep their savings in banks for rainy days, can get benefit by this bonds.

But government should remember that in 2014-15, they can’t repeat the same mistakes, which they did in 1998. In the past, a special package of Foreign Exchange Remittance Card had been implemented and under these, five categories of remittances cards are offered to those overseas Pakistanis who remit $2500 to $50,000 in a year. Along this a wide range of incentives are being offered to the Foreign Exchange Remittances Card holders. But this scheme not brought a successful outcome, as in 1985 a scheme of foreign exchange bearer certificates was introduced, given the facility to the migrants that whenever desired it could be cashed in foreign or domestic currency. However, after nuclear explosion in 1998, these bonds were converted back into rupee bonds by the former government of Nawaz Sharif and upsetting many Pakistani investors. Even now due to past experiences of bond holders restricted them to invest in package of Foreign Exchange Remittance Card.


As government realized too that remittances have been a constant cushion for Pakistan’s forex reserves. Increase in remittances would further enhance the reserves level and reduce the current account deficit. Trade deficit, the real reason for higher current account deficit, also narrowed during the eight months, declining to $12.5 billion from $13.2 billion in the year-ago period. So government not only introduced different incentive packages like bonds to overseas Pakistani but also remembered to develop their confidence. With better policies and strategies government can easily tap another $4 billion remittances annually from United Arab Emirates provided the existing potential is 100 percent exploited.

On the other hand, in many developing countries, remittances are nearly double the country’s revenues from exports of goods and services, while in Sri Lanka and the Philippines, they are over 50 percent and 38 percent, respectively. In India, remittances during 2013 were $70 billion, more than the $65 billion earned from the country’s flagship soft wear services exports. In Uganda, remittances are double the country’s income from its main export of coffee.

But still Pakistan’s annual remittances per migrant are ranked far below those of neighboring countries like China and India. The data taken from a WB and IFAD’s report released last May shows that annual inflow per migrant stood at $7,943 for China, $6,144 for India, but only $2,978 for Pakistan, means 51 percent lower than Indian’s annual per migrant inflow. Along this, a Pew Research Center report in December, using WB and UN databases, showed that Pakistan had a 2.45 percent share in global migrant stock and received 2.91 percent of global remittances in 2013. India, on the other hand, had a 6.12 percent share in the migrant stock but received a proportionately greater share of 13.89 percent in global remittances.

Government can use its good offices to facilitate more Pakistanis in the employment sector of Gulf countries. In Saudi Arabia, there are multiple projects that are coming up-not in traditional investment areas like Riyadh, Jeddah or Dammam, but in other cities. Even 2020 World Expo in Dubai and the Qatar’s hosting of the 2022 FIFA World Cup will also boost overseas workers demand. The government of Dubai expects 277,000 new jobs to be created in the next few years, just to be able to gear up for the Expo 2020, but there is a chance that those numbers could go up. Investment that will come in is said to be in excess of 25 billion dirham – about $7 billion. So there is potential booming of the economy in the next couple of years. There will be new workers coming in, which will lead to remittances growth for Pakistan over and above the natural growth.

For this government should plan vocational training, which incorporated in mainstream primary and secondary level curricula and increase the communication skills. Even, in federal and provincial level syllabus, Arabic should be instructed like an international language. It is observed that the migrants from India, Sri Lanka and Bangladesh in their first three months put all their efforts in GCC states to learn Arabic to get better jobs.

In the end, government should work to develop the confidence of overseas Pakistanis and introduce schemes that treat migrants as a ‘renter-saver’ or ‘small scale investor’, along this try to explore more job market in Gulf countries. As the steady flow of remittances has resolved the foreign exchange constraints, improved the balance of payments and helped increase the supply of national savings. Along this, remittances transfer can promote access to financial services for the sender and recipient, thereby increasing financial and social inclusion.


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