Remittances and exports save the day for Pakistan’s fragile external balances

Surging home remittances sent by overseas Pakistanis, and a spike in exports are saving the day for external balances which, though improved, are still fragile.

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Published: Mon 31 May 2010, 10:49 PM

Last updated: Mon 6 Apr 2015, 11:13 AM

Overseas Pakistanis, especially those working in the United Arab Emirates, Saudi Arabia, Gulf, US, and UK are sending home record remittances. The amount tallied up to $7.306 billion during July-April, the first ten months of the current fiscal 2010, State Bank of Pakistan (SBP), the central bank reports. It shows a 14.9 per cent increase over the like period of FY-2009 when the amount was $ 6.355 billion.

The monthly average inflow for the last 10 months was $ 730 million, making Pakistan the country with the highest growth of remittances while the global financial crisis has not fully faded out. The monthly average in the same period of FY-2009 was $ 635.56 million. Bangladesh, Mauritius, Swaziland, Guinea Bissau and Philippines follow Pakistan in remittances growth.

The remittances were the second biggest forex earner after exports.

The other good news this week is that the trade deficit (TD) during July-April of fy-2010 at $ 12.238 billion was narrower by 13.92 per cent, as compared to $ 14.218 billion in the like period of fy-2009. This was due to higher exports and reduced imports.

The current account (CA) has also indicated a good trend over months. A continued improvement in the external balances will help reduce Pakistan’s need to borrow from outside sources, including the IMF, check depletion of forex reserves, and stabilise the rupee.

If these positive developments continue, they will also encourage larger inflow of foreign direct investment (FDI). The country will be able to foot a larger part of its import bill which. It will help stabilise domestic prices of products which use substantial quantity of imported inputs.

Part of the improvement in external balances, and increase in exports, followed on the back of government and the SBP’s policy to let the Rupee depreciate. They did not ease the monetary and fiscal policies which also contributed to an improvement in the external sector.

The 10-month period saw home remittances inflow of $1,663.22 million from United Arab Emirates, $1,525.90 from Saudi Arabia, $ 1,461.80 from US, $1033.00 from GCC region — including Bahrain, Kuwait, Qatar, and Oman — $734.59 million from UK, and $219.22 from EU. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries amounted to $676.86 million, up from $628.09 million in the like period of FY-2009.

The surge in remittances is attributable to reasonably stable exchange rate in Pakistan, despite occasional weakness of the rupee against the hard currencies, including the green back, and provision of better banking services at home and abroad. The SBP, the Ministry of Finance and the Ministry of Overseas Pakistanis had also launched a joint plan called “Pakistan Remittance Initiative some months ago to facilitate the inflow of remittances through formal banking channels, and to curb ‘hundi’ or “hawala’ business.

“This initiative has started to pay off. The remittances through formal channels are showing considerable growth,” officials said.

Pakistan’s external sector during the current FY-2010 is moving in the right direction. But, it needs a close monitoring. At the moment export growth is quite limited . If the present energy crunch, prolonged power outages, and the war on terror expand, it will have an adverse impact on industrial output.

All these elements have to be properly taken care of in order to ensure the current positive trends in external balances, and to make Pakistani an attractive destination for foreign portfolio investment in its bourses and FDI inflows into industry and business.

Views expressed by the author are his own and do not reflect the newspaper’s policy.

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