Remittances serve as a catalyst for investment and a lifeline for economic growth because they induce a cycle of consumption, production, exports, income and further investment as a sizeable portion of the GDP to help prop up the cash-strapped economy of Pakistan.
Remittances are also important because the act of sending money by Pakistani migrant workers to their families and other individuals is typically spent in full on gross domestic products in Pakistan, which also contributes to the national economy. However, this is an irrefutable fact that the Pakistanis living in foreign lands have been providing the much-needed solace to the economy of the country by remitting billions of dollars regularly. These inflows of remittances have been helping in meeting the country’s trade gap.
Economists believe that the remittances have been helping in bolstering the country’s depleted foreign currency reserves and mitigating recurrent balance of payment problems caused, in part, by chronically weak exports and a reliance on imported fuel. This should come as no surprise, given that Pakistan is a relatively impecunious economy, the country has an approximate population of nine million spread across the continents.
Out of these nine million, around 50 per cent are nestled in the Middle East including Saudi Arabia (around 2.5 million), the UAE (1.5 millions), Qatar, Oman, Kuwait, Iran, Iraq and others. While the remaining are spread across the UK, US, Europe and other destinations.
The most substantial chunk of remittances comes from the Middle East and Gulf states, especially Saudi Arabia and the UAE as they have been providing a major support to keep the wheels of the national economy moving. Both these countries recorded remittances of $18 billion during the seven months of the current fiscal year (Financial Year 22) as they continue to defy forecasts to the contrary, the State Bank of Pakistan’s data shows. These stronger inflows of remittances continue to support Pakistan’s balance of payment position and play a significant role in the country’s domestic economic growth.
According to the Central Bank, inflows from Gulf Cooperation Countries (GCC) increased by 8.7 per cent to $3.622 billion. However, the highest growth was noted in the inflows from the EU countries as they reached $3.361 billion in Financial Year 22.
These inflows have helped stabilize Pakistan’s economy, which registered a current account surplus and saw its foreign exchange reserves surge after depletion. However, lower levels of economic activity, surging oil prices and lower employment of migrant workers in the GCC region and other counties are likely to impact flows in future. The increase in remittances from Pakistani workers in the Gulf and elsewhere can be explained by the increase in demand for workers in e-commerce and other industries, which benefited from the pandemic.
The data of Pakistan remittances by country indicates that remittances from other countries such as Malaysia, Switzerland, Norway, Japan, Canada, etc. contribute a significant amount, totalling to $205.43 million altogether.
The Central Bank claims that proactive policy measures to encourage more flows through formal channels, curtailed international travel, altruistic transfers to Pakistan amid the health crisis and orderly forex market conditions contributed to the surge in remittances.
Overall, Pakistan receives approximately $29 billion per year in remittances sent by non-resident Pakistanis. However, according to the Central Bank, the country received record remittances of over $31 billion in the financial year 2021-22 (Financial Year 22), an increase of 6.1 per cent.
Overseas Pakistanis sent $2.761billion in June Financial Year 22, compared to Rs. 2.332 billion in May, showing an increase of $429 million despite serious problems on the external account caused by rising trade and current account deficits. During the Financial Year 22, the country received total remittances of $31.761billion.
These remittances are the single largest source of foreign currency for Pakistan, ahead of exports. They provide key support to currency and forex reserves by bridging the balance of payments in the face of reduced dollar flows from other sources. The rising remittance flow has so far helped support the current account, creating a semblance of external-sector stability.
The Pakistani government has introduced various incentives to boost remittances by curbing illegal flow of money under the FATF mandate and encouraging overseas to send money through formal banking channels.
The government has been facilitating the overseas Pakistanis by offering ex¬emption from income tax and visa, non-resident Pakistani cards, establishment of special immigration desks at airports, higher import and duty allowances, etc. to ensure that they may keep the dollars flowing. Of late, the Pakistan government introduced Roshan Digital Online Banking to facilitate remittances by overseas Pakistanis. Approximately 70,000 Roshan Digital accounts have been opened, according to the State Bank of Pakistan. It was for the first time in Pakistan that an account-opener does not have to come physically to open an account as it can be opened digitally from any location.
It is a fact that ever since its independence, Pakistan’s scope for sustained economic growth and welfare has been dependent on remittance inflows and foreign loans. So, it is imperative to address any issues that impede remittances inflow. One is the growth of illegal recruitment agencies. Pakistan can do this by establishing strong relationships with the destination country to achieve bilateral coordination. This will help provide better employment opportunities to workers without the risk of them being exploited. Migrant workers live all over the world and their presence is often found in laborious jobs like picking fruits and vegetables, working in factories and as building labourers. Most of migrant workers travel from place to place for short-term jobs. Some of the most vulnerable migrant workers are those who are undocumented or those who work illegally. When abuse and exploitation occur at the job, these workers may be too afraid to report it to the authorities concerned. Often whether or not migrant workers receive decent pay and benefits remains at the mercy of the employer.
The Gulf countries will still depend on Pakistani migrants. Given the population size of GCC, the limited talent pool of locals and the immense need for international talent for growing markets, GCC countries will continue depending on labour from other countries including Pakistan. The government of Pakistan needs to buckle up resources and launch comprehensive nationwide training programmes immediately to prepare skilled labour and export it according to the demand in the GCC and other countries. The Pakistani embassies abroad need also be proactive in facilitating the overseas Pakistanis.
With inflows from cash to digital and from informal to formal channels as well as cyclical movements in currency exchange rates and oil prices, this will fetch better-than-expected remittances to help boost the country’s economic conditions.
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