November 26, 2007	Monday	Ziqa’ad 15, 1428

Overseas Pakistanis sent a record $580 million as home remittances during October, up by 41 per cent over the amount registered for the same month last year. In the first four months of the current fiscal, remittances totalled f $2.81 billion, which was an increase of 26 per cent over the comparative period of last year.

In fact, the amount sent home by overseas residents has risen phenomenally from under $1 billion by the end of 1990s and the beginning of the year 2000. In the last fiscal year, it was a record $5.43 billion. The full potentials of remittances have yet to be realised which are estimated at around $10 billion, more or less on the lines of the Philippines.

In the past, after the remittances had touched almost $3 billion, more and more overseas Pakistanis started using the hundi or hawala for sending the money home. They got more rupees for the dollars through the hawala system. But now because of the western vigilance and monitoring, the use of the hawala channel has been reduced significantly. But if the rupee loses its stability, remittances may start coming through the hawala and the government will be the loser for that.

How best have we used of home remittances? Have we built up adequate foreign exchange reserves with the remittances that came?

We have built up a foreign exchange reserve of $16 billion but initially most of the dollars were bought from the open market and later through the inter-bank operations. Far more could not be saved because of the spending spree which resulted in a trade deficit of over $13 billion in the last financial year. The remittances covered only a part of the large trade deficit.

The rupee has come down to its lowest value in relation to the dollar, although the dollar has been falling steadily in relation to euro and has touched its lowest ebb. The State Bank of Pakistan had to intervene on two occasions to save the imperilled rupee by injecting $80 million.

Appeals are now being made to caretaker prime minister to stabilise the rupee. But it is by no means easy when the supply of dollar is not unlimited and the speculators also trade in dollars. Within the first four months of this financial year, there was a trade deficit of $5.6 billion -- with imports at $11.44 billion and exports at $5.84 billion. The fear is that the trade gap may be wider than last year when it was $13.53 billion

The imports last year were at $30.54 billion and exports were at $17 billion. The trade deficit is likely to get far worse as the oil prices are soaring, bordering on a $100 a barrel. And fuel prices are rising even higher.

In addition, the dollar is sliding and oil may cost more in dollars. In such a situation, the Indian rupee is doing well at 39 to a dollar against 61.40 of Pakistan currency. The Indian Commerce Minister. Kamalnath however says the costly Indian rupee which has risen by fourteen per cent this year against the dollar is hurting India’s exports. He wants measures to be devised to increase the exports.

As far as Pakistan is concerned, inflation will rise in case of 15 per cent increase in POL price, but also because of the 23 per cent proposed rise in power rates and seven per cent rise in gas charges. The inflationary pressures will hurt the rupee unless special remedial measures are adopted.

Meanwhile, India and Pakistan are setting up a study group to jointly promote their exports. They can co-operate well in areas like Banaspat rice, mangoes and even textiles. India has proposed to Pakistan to include 448 items more in its positive import list. Pakistan can respond to some of them positively. There is some progress in the area of trade. Certainly positive moves are being made and the two sides can gain a great deal by cooperating with each other.