PAKISTAN is celebrating the possibility of receiving around $2bn in remittances from overseas workers in the month of Ramazan. The highest-ever remittance in any one month was $1.5bn in June 2014, followed by $1.438bn in May.

Given the fact there has been a sharp focus on anti-money laundering efforts and against the hundi/hawala business, the yearly growth in remittances has been relatively low. Total remittances in FY14 were $15.83bn — up only 5.5pc from $13.9bn received in the preceding year.

This $15.83bn is a great blessing for Pakistan, as it manages the otherwise unsustainable adverse trade balance to a large extent. With exports of $25.2bn and imports of $45.2bn in FY14, the country’s trade balance was at a negative $20bn — consistent with adverse trade figures during former Prime Minister Shaukat Aziz’s last three years in office.

While the country’s exports finance around 55pc of imports, remittances fund over one-third

Their importance can be gauged by the fact that while the country’s exports finance around 55pc of imports, remittances fund over one-third of the imports. And while there has been a lot of talk of honoring overseas Pakistanis, for which special ministries and divisions have been created and remitter cards provided, nothing practical has been done.

According to World Bank data, Pakistan was the ninth-largest remittance receiving country in 2012 — with over $14bn. This tallies with the SBP’s figures of $13.9bn for FY13 and is in line with $15.8 for FY14.

The country receives over $1bn from four countries, which account for 50pc of total remittances. These are Saudi Arabia (30pc), UAE (19.6pc), US (16pc) and UK (14pc). If seen together, this shows Pakistan’s vulnerability to the US, European Union and the Middle East, in terms of its dependency on exports and foreign aid.

In this context, outward remittances from Australia have been quite healthy, given the very small size of the expatriate Pakistan community there. Australia remits around $15bn globally, and major outflows are to the UK, China, India, Far East, Lebanon and the EU. Pakistan comes in as the 31st largest destination of remittances from Australia with around $76m received in 2012 (WB data).

However, this figure is in sharp contrast with the SBP’s figure of $150m and $115m for FY13 and FY12 respectively.

This sharp variance between World Bank and SBP figures is a result of the presence of shady remitters who worked in collision with illegal entities, as the money is not remitted directly but is deposited in these money changers’ accounts in Australia. They would subsequently remit the amount as per their convenience and given the best exchange rates.

However, with tighter anti-money laundering efforts and checks on counter terrorism funding, these practices may now be reducing. Expatriates trying to remit money back home are caught between safe modes of transfer through recognised banks giving lower rates, and shady dealers offering good rates. Many Pakistani banks like HBL, NBP and others have foreign branches, and it is safe to send money through them even if non-banking channels offer better rates.

While non-banking channels offer better rates, it is critical that they possess the highest credible licence from the host country. In Australia, it is extremely difficult for a company to get a proper licence from the regulators, which bestows credibility and guarantee of security. The Australia Security and Investment Commission grants the Australian Financial Services Licence (AFSL) to companies after performing strict due diligence. While there are many exchange remitters to Pakistan in Australia, only one company has the AFSL licence.

The writer is a former Consul General of Pakistan in Sydney

Published in Dawn, Economic & Business, July 28th, 2014