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Overseas Pakistanis come to the rescue of their homeland

Overseas Pakistanis, once again, have outperformed their homeland in building up forex and external balances at a time of extreme distress. This sums up the story of the just-ended fiscal-2012. While the overseas Pakistanis set an all-time historic record by sending $13.18 billion, as remittances, the country’s trade deficit widened to a record $21.271 billion, or 36.32 per cent in FY-12 that ended on June 30. This is indicated in reports just unveiled by State Bank of Pakistan (SBP), the central bank, and the Federal Bureau of Statistics (FBS).

The overseas Pakistani, including those working in Dubai, Abu Dhabi the Gulf countries, Saudi Arabia, UK and US, sent home $13.186 billion — up from $11.20 billion in FY-11— a 17.73 per cent growth SBP says.

“Monthly average of remittances was more than $1 billion — except for September and November, 2011 in which the inflows were $890.42 million and $942.92 million, respectively.

What caused the big boost in remittances? The key cause was the strong emotional and family attachment of the Pakistani workers and their keen desire to help the home- land.

The heart-warming fact is that it happened at a time when foreign inflows have either stopped or turned minimal due to Western financial crisis and Islamabad-Washington political tensions over the war on terror and the ongoing war in neighbouring Afghanistan.

But, the SBP also attribute it to “the efforts made by Pakistan Remittances Initiative (PRI), launched in April 2009 in collaboration with other stakeholders — to facilitate both overseas Pakistanis and their families at home.”

“Since its inception, the PRI has taken several steps to enhance flow of remittances through formal banking and financial channels which include preparation of national strategies on remittances, taking all the necessary steps to implement overall strategy, playing the advisory role for the financial sector in terms of preparing a business case, relationship building with overseas correspondents, creating separate efficient remittance payment highways and becoming a financial focal point for overseas Pakistanis through round-the-clock call centre.”

Remittances received from all countries of the world showed “substantial growth during FY-12, and almost all of the growth was through the banking channels,” SBP also reports, as a plus point. It is in contrast to the many remitters who resorted to “hundi” and “hawala,” which SBP thought was the case in the past.

That was the good part of the external balances. Now the bad one. The performance of the economy back home.

Pakistani trade deficit widened by 36.32 per cent to a record $21.27 billion in FY-12 — as compared to $15.60 billion in FY-11, FBS says. What did it?

“Due to the prevailing power and natural gas crisis, Pakistani industrialists could not meet billions of dollars worth of export orders — resulting in the alarming trade deficit,” FBS analysis point out.

Add to that the fact that despite the depreciation of the Pakistani rupee against the greenback and other hard currencies, “the economy got no significant respite through an increase in exports and decline in imports.

At the weekend dollars was trading at Rs94.30/94.35 in the inter-bank and Rs94.75/94.95 in the kerb.

With this week’s opening of Nato military supply land routes through Pakistan to Afghanistan, which is a huge source of smuggling of goods and dollars into Pakistan, rupee value has slightly improved, but will it last long? “Large debt repayments and a sharp decline in foreign direct investment inflows, will keep the rupee under pressure in the medium term,” says Sayem Ali, forex analysts and economist of a foreign bank.

FY-12 saw the country’s exports total $23.64 billion — down 4.71 per cent from $24.81 billion in FY-11. Imports in FY-12 rose 11.13 per cent to total $44.011 billion — up from $40.41 billion in FY-11.

The government’s economic and financial mangers are worried over the widening trade deficit, and next-to-nothing forex aid and investment inflows. “The burgeoning trade deficit will bring pressure on the current account deficit (CAD) which can, ultimately press the rupee value down,” a Finance Ministry officer says. “It will also confront the government’s economic planners with the dilemma of managing the financial accounts. Islamabad needs funds to get rid of the troubles,” he warns.

The external accounts situation is assuming unsettling proportions. This is because foreign aid and FDI inflows have dried up. The rising home remittances of the Overseas Pakistanis are the only plus point. This being the reality of the external balances, for how long will the Overseas Pakistanis continue to carry the cross?

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