Remittances keep Pakistan's economy afloat
The country largely depends on overseas Pakistanis to keep the wheel of the economy moving through their generous $20 billion The country largely depends on overseas Pakistanis to keep the wheel of the economy moving through their generous $20 billion
Pakistan's economic lifeline is its remittances. A staggering $2billion from overseas Pakistanis per month on an average is a blessing in disguise for the cash-starved economy and has widely helped in balancing payments towards imports, especially oil. They have acted as a catalyst in growth and investments. Undisputedly, it is one of the primary sources of foreign exchange reserves for the country and for an economy, which is ridden with inflation and slump in exports, the annual subscription of more than $25 billion acts as its backbone.
The good point is that despite somersaults on the global economic level and a nosedive, Pakistanis have stood fast in retaining their culture of remitting back home, and have widely entrusted the country's banks and other legal avenues for transfer of funds. Despite a wide gap in the dollar rates in open and banking markets, overseas Pakistanis preferred to send money mostly through the banking channel. This reflects their confidence in the government, as well as banks operating in Pakistan. The State Bank of Pakistan, in one of its recent reports, said that Pakistan has fared relatively better than other regional countries concerning foreign remittances.
Estimates say an average of $1.7 to $1.9 billion is received on a monthly basis, which accounts for a staggering $22 billion per annum. Most of the remittances are from the Middle East and Gulf countries, especially Saudi Arabia, the UAE, and Oman. Payments from all important destinations, except Saudi Arabia, showed positive growth. Inflows from the kingdom declined 7.5 per cent during the last fiscal year to the tune of 5.5 per cent. Nonetheless, Pakistan received $2.5 billion from Saudi Arabia in the year 2017. The second highest inflow is from the United Arab Emirates, which increased 1.13 per cent to $2.2bn.
A silent but sizeable chunk of remittances, although on a quarterly and six-monthly basis, are also registered from the United States, the European Union, South Africa and Australia. Many of the Far East Asian countries, especially Malaysia and Hong Kong, Korea and Japan also are potential remittances pockets. Remittances from the US have also seen an upward trend by around 10 per cent, to cross the barrier of one billion dollars per quarter. Similarly, inflows from the UK also recorded an increase of 23 per cent to $1.35 billion.
This primarily acts as seed money for the country's balance of payments, and to a great extent compensates for lack of foreign investment and slowdown in portfolio investments. The pre-budget Economic Review, however, estimated that remittances could grow by 50 per cent if the government provides due incentives to its non-resident citizens, and ensures that their foreign exchange is safe and reusable in the same currency. Likewise, remittances directly deposited in Pakistani bank accounts can also get a boost and shoot up to $100 billion - a retained safe territory, if stringent measures are taken and assurances on withdrawals limits are waived.
The free flow of foreign currency in the form of remittances can lift the economy to new heights. Pakistani foreign currency accounts maintained abroad are in billions of dollars, and a submission in the Senate of Pakistan said that they account for around $800 billion. That money sooner than later should be in the mainstream of Pakistan economy, provided anti-money laundering policies get thumbs up.
The World Bank says growth in Pakistan's remittances if assessed in US dollars, was assisted by an increase in oil prices and the strengthening of the ruble and euro, as well as the greenback.
Pakistan's inward remittances were projected at $19.665 million in 2017 compared to $19.771 million during 2016. Outward remittance figures, however, from the country for 2017 were not available, but for 2016 they were recorded at $63 million. Likewise, remittances into Pakistan constituted seven per cent of the gross domestic product during the last year.