March 05, 2007	Monday	Safar 15, 1428

THE campaign against money laundering is to be stepped up due both to national necessity and the pressure of international aid agencies and major donor states.

The CBR, which wants to undertake such a probe more to prevent tax evasion than to check terror financing, is to be in the lead in this endeavour.

For a long time it has wanted to undertake such a probe and now a number of its officials are to be trained by international consultants to start this difficult task.

CBR Chairman Abdullah Yusuf suspects that the rapidly-swelling home remittances of overseas Pakistanis include a large part of the tax-evaded income of resident Pakistanis, which were sent abroad through the hundi system and then brought back home as clean remittances and hailed at home..

He has wanted to put his hand on such monetary inflows, which are expected to rise to $5.5 billion this financial year. The remittances in July-January, a period of seven months, have already risen to $2.959 billion — an increase of 21 per cent over the same period last year.

The decisive turning-point was 9/11 in the increase of remittances sent by three to four million Pakistanis. By that time the remittances had sunk below a billion dollars. By 2001-02 they rose to $2.389 billion, by 2002-03 to $4.237 billion, by 2003-04 to $3.872 billion and by 2004-05 to $4.16 billion and by 2005-06 to $4.600 billion. This year’s average monthly remittances are $422 million which is 21 per cent more than the remittances last year.

That is not all the money coming from abroad. The hundi system, which was suddenly eclipsed after 9/11, is active again both ways — sending out money, getting all of it or a part of it back home.

While the tax-evaded money may come home in this manner, the money which went out that was earned through corruption in high places or major crimes, including drug smuggling, may not come back except in a small part for fear of being found out. Corrupt officials are cautious in this respect and regard it safer and better to invest their ill-gotten money abroad.

There was a recent case of kidnapping in which a large ransom was to be paid in Britain, but the process was aborted when the kidnapped person was released.

So the CBR is more interested in uncovering the tax-evaded money as home remittances, but the finance ministry has stood in the way with the backing of the prime minister. The government does not want the rising flow of remittances to be arrested or reduced and create financial complications.

The country has a large current account deficit of $ 4.2 billion in the first six months of the current financial year, touching the official ceiling of $5.5 billion for the whole year in spite of the large home remittances and heavy foreign direct investment. And with the world oil price not coming down really, Prime Minister Shaukat Aziz does not want to do anything that interferes with the flow of the large home remittances.

In fact suggestions have been made that the remittances can rise to $10 billion, as in the case of the Philippines, if more incentives are given for making larger remittances and better rewards are offered for investing remittances at home. That appears to be more of a dream sequence than a reflection of reality unless there is a sudden large increase in the number of Pakistanis employed abroad.

The US is the largest source of home remittances which, for the last three years, have been exceeding $1.2 billion annually and that is followed by remittances from Saudi Arabia and the UAE.

Far more remittances are coming more than before, because of the fear of savings being frozen in the West in the name of terror financing or suspicion of that on some flimsy grounds. The hundi system has become weak and the banking system for the delivery of remittances strong. The rupee has become more or less stable for some years now and the number of Pakistanis employed abroad has increased recently.

But to expect that most of the money sent home should go into investment is not correct. Most of the money sent home by three to four million Pakistanis abroad is for the necessities of the families and meeting their domestic expenses. Some money goes to real estate and some to renovation or expansion of family homes.

In the 1980s a survey was conducted to ascertain how much of the remittances is saved and invested. The survey revealed that almost $3 billion was saved and invested. The study showed that only 14 per cent of the remittances were saved for buying taxies and other instruments for income generation. The institutional saving was only 1.4 per cent. The findings were too disappointing for those looking for larger savings from the sudden large foreign earnings.

Those who sent home remittances are not familiar with investment pattern here and not confident of the integrity of the investment schemes. If special investment instruments are created with guarantee for the security of the capital, they may invest in such instruments.

We must avoid unrealistic approaches to home remittances disregarding their history for the last 25 years.

The overseas Pakistanis also bring home a variety of consumer goods and consumer durables like electronics, tax-free or otherwise and sell them in the local market. They bring in cars as well and sell them here. If they did not bring such items, we may have to import them sending foreign exchange which gets saved now. No figure has been given so far of the total value of such goods while their number has risen to about 700 after the expansion of the list for this purpose.

What will happen after the CBR is allowed to screen out the money laundered from the real remittance? Will more of the income be sent through the hundi system which has become active again? Or will there be a fall in the tax-evaded income following the total reform of the CBR which is proposed now? We will have to wait for answers for such questions as the black sheep gets screened out of the honest overseas Pakistanis who send their remittances home.