July 21, 2003	Monday	Jumadi-ul-Awwal 20, 1424

While Pakistan’s foreign exchange reserves have touched all time record levels, nearing $11 billion. Remittances by non-residents seem to be the main driving force behind this huge build-up. Workers remittance shot up to $4.236 billion in fiscal 2003, up 77.34 per cent from $2.39 billion remitted in fiscal 2001-02.

The remittances have always played an important part in the balance of payments situation since early 70’s, when the populist government led by Zulfiqar Ali Bhutto secured lucrative market for labour force in oil-rich Gulf states, principally Saudi Arabia.

At that time, the remittances stood around mere $100-150 million but became most important source of foreign exchange earning a decade after,in the 80’s. In mid 80s, the remittances surpassed exports reaching a peak at $2.9 billion in 1982-83. But this sector performed too poorly afterwards, particularly in the 90’s.

As the banking channels failed to attract remittances, mainly because of their in-efficiencies and difference in the exchange rate, the ‘hundi’ and ‘hawala’ became the alternate channel.Money remitted through legalized channels declined drastically in this period to as low as $0.9 billion in 1998-99. The failure of successive governments to address the grievances of overseas Pakistanis further aggravated this situation.

Crossing the figure of four billion dollars in the last financial year is undoubtedly a landmark. It is important to note that the country had never reached the $3 billion mark before. Leading experts believe that the inflow of remittances can cross the $4.5 billion mark in current fiscal year.The hope has been raised by the recent trend.

No doubt, this is an encouraging situation for a country always caught in trouble on the balance of payments front. The remittances started picking up when hundi business came under strict worldwide scrutiny after 9/11. So the remittances of overseas Pakistanis saw an upsurge. It was for the first time in many years that remittances crossed $2 billion mark, $2.39 billion to be exact,in fiscal year 2001-02.

Coupled with anti-hundi and anti- money laundering efforts, some of the official incentives have also been helpful. For example non-resident Pakistanis remitting foreign currency equivalent to $10,000 per annum are entitled to : i) separate counters for special handling at arrival and departure lounges at airports; ii) free issuance and renewal of passport on an urgent basis and iii) Duty free allowance of personal baggage of a value of $1500 during a calendar year. Those remitting less than ten thousand dollars per annum have also been offered some incentives.

Moreover, the military led government took some other encouraging steps to rejuvenate this important source of foreign exchange including reduction in minimum limit for the reimbursement charges $200 to $100, converting money changers into foreign exchange companies and enhancing the efficiencies of banking channels.

Banks have become more reliable and efficient in the recent times. The decrease in gap between official and unofficial exchange rate of dollar played its part as well. At times, the dollar became dearer in the kerb market. These factors have also been helpful in the ongoing upward trend.

While this upward trend is highly encouraging, more important is to sustain it. The need to strengthen the infrastructure supporting this flow becomes more evident now. Experts believe that a large potential still remains un-exploited. It is estimated that Pakistanis working abroad can remit foreign exchange of around $7-8 billion every year. So, there is no room for slackening official efforts aimed at netting in more hard cash through this source.

Certain weaknesses in the financial sector, the banks, need attention. The cost of transferring money through banking channels should be rationalized. The time period involved also needs to be minimized and the banks’ efficiency be improved further. Banks have not shown much interest in workers remittances in the past. This is beginning to change, however. It is good to note that certain banks have started improving their infrastructure for the purpose.

As the remittances are stabilizing the economy, efforts are needed to use this source in a more productive manner. The government has not come up with any comprehensive plan in this regard so far. A detailed study is needed to asses that how these remittances can be beneficial for the economy in the long run.

Given the importance of remittances in the light of their multiple effects, the government needs to make such a policy that aims at maximizing the impact of this inflow on production, development, growth and increase in incomes of the people. A number of countries around the globe have effective remittance policies that are promoting the culture of investment and contributing to growth in respective regions.

We must not ignore the fact that remittances are standing at 6 times more than the total foreign direct investment (FDI) coming to the country in the last year, $700 million only. Despite this, they have not been of any great advantage for the country, as the overall investment remains low.

The money remitted is going either in conspicuous consumption in the real estate or shares’ trading in the bourses. This money is in fact, behind the record surge in KSE index in recent months.

But this can not be termed as a productive use. This money that comes to over Rs230 billion, almost six per cent of the GDP, should be channelled for development purposes. It must be made part of a comprehensive development and poverty reduction strategies.