AT a time when the rupee is under constant pressure because of rapidly falling foreign exchange reserves, the increase in the amount of money sent home by overseas Pakistanis is good news. Remittances have grown 9pc in the first quarter of the present fiscal to $3.9bn — equal to the liquid reserves of the central bank. Although foreign currency earnings of overseas Pakistanis have been feeding the country’s reserves and propping up the rupee for some time now, the importance of remittances has increased recently as exports stagnate and foreign official and private flows dry up. Even an IMF loan has failed to shore up the reserves or revive public confidence in the rupee. In recent days, the latter was hit hard by a weakening exchange rate and capital flight. Most people like to park their savings in dollars rather than in rupees as indicated by the rising volume of foreign currency accounts of commercial banks to $5.17bn — an amount that is substantially higher than that of the official liquid reserves.
Remittances feeding reserves isn’t a Pakistan-specific phenomenon. A new World Bank report says remittances are now nearly three times the size of official development assistance and larger than private debt and portfolio equity flows to developing countries. They exceed foreign exchange reserves in at least 15 developing countries, and are equivalent to at least half of the level of reserves in over 50 developing countries. Flows to developing countries are expected to reach $540bn by 2016 and are expected to remain strong or even increase in several countries affected by weakening balance of payments, such as Pakistan which is one of the large recipients of remittances. While remittances are important for Pakistan, the latter cannot hope to improve its balance of payments position and to strengthen the rupee without boosting exports. The government must put in place policies that unlock the true export potential of the country. Even the slightest decrease in remittances for any reason will make matters worse for the government and the people.