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Pakistan’s remittances

Updated April 17, 2015
The writer is a former economic adviser to government, and currently heads a macroeconomic  consultancy based in Islamabad.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Worker remittances to Pakistan have increased sharply since the launch of the Pakistan Remittance Initiative (PRI) in 2009.

Thirty-three years after the first remittances began to trickle in from the Gulf, their volume had reached $6 billion.

In the six years since then-finance minister Shaukat Tarin launched the PRI with the State Bank of Pakistan and other stakeholders, worker remittances have increased by 150pc — and are expected to comfortably cross $15bn this year, adding a precious extra $9bn to the country’s foreign exchange reserves.

Read: Overseas Pakistanis remit $13.3bn in nine months

The importance of PRI in anchoring Pakistan’s balance of payments during this period can be gauged by the fact that inflows from remittances now fully cover the country’s petroleum imports.

By comparison, the country’s exports recorded a lower increase, rising from $18bn to $25bn, for an increase of $7bn. Without the upsurge in remittances during this period, Pakistan’s balance of payments would have been in dire straits.

Given that this policy initiative has been so crucial in stabilising the country’s external account, it is surprising that even informed observers appear to know little of its working and how this lifeline initiative has changed the face of remittances — or who initiated it.


It is surprising that even informed observers appear to know little of the PRI’s working.


Like in many other areas, Pakistan had taken no policy measures since the 1970s to provide a single framework to streamline worker remittances.

This was in sharp contrast to other large remittance-receiving countries such as the Philippines, which had established national agencies to act as a single point for coordinating policy on remittances.

In early 2009, the finance minister set up a task force jointly with the State Bank of Pakistan and the major remittance-routing banks to study ways to systematically increase the flow of worker remittances into the country through formal channels.

Among the first tasks undertaken was to commission and conduct research on Pakistan’s remittances, including the total volume of inflows from both the formal as well as informal channels (such as hawala/hundi).

For the first time, a dedicated agency, housed in the State Bank of Pakistan, was set up to monitor and handle all banking-related aspects of remittances. In addition, a system of financial incentives was introduced for banks and other agents to encourage them to increase the volume of remittances.

Finally, perhaps the most critical component of the entire initiative was put in place: a real-time settlement system between the commercial banks that allowed for a near-instant transfer of funds received by one bank in Karachi to a branch of any other bank in any part of the country.

This neutralised one of the main advantages of using hawala/hundi: speed of transfer. Thus, if a Pakistani worker in the UAE sent a remittance through, say, UBL, he could now be assured that the funds could be accessed by his family in Muzaffarabad or Karak via any of the major banks close by within two to three days.

While it is difficult to say what the impact on the overall volume of worker remittances has been, given that a large volume of remittances were being routed through informal channels and the PRI diverted these to the banking system; nonetheless, the impact on official inflows and the attendant effect on the balance of payments has been outstandingly positive.

With the importance of worker remittances so visible and obvious, it is unfortunate that after Zulfiqar Ali Bhutto’s hugely successful initial efforts to export manpower to the Gulf, so little attention has been paid by successive governments to this endeavour.

The export of manpower is on the top of economic diplomacy initiatives for the governments of India, the Philippines, and Bangladesh, whose inward remittances amounted to $70bn, $28bn and $15bn respectively in 2014. (India is the world’s largest recipient of worker remittances, followed by China at $64bn).

On the other end of the spectrum, the apathetic attitude of our governments is demonstrated by the recent memoranda of understanding signed on the sidelines of the Qatari emir’s visit.

With a major infrastructure push under way in Qatar in preparation for its hosting of the football World Cup in 2022, it is a magnet for regional manpower-exporting countries.

Not so, it seems, for Pakistan which chose to sign two MoUs on the occasion — one relating to sports and the other to cultural exchanges!

Out of a total estimated global pool of 247 million migrants, the total strength of Pakistan’s diaspora has been barely growing over the last several years from its strength of around seven million. Bangladesh has nine million emigrant workers, India around 25 million.

Given the annual growth in its labour supply, the sluggish growth of the economy and the large stock of unemployed, prioritising the export of semi-skilled manpower should be an obvious top area of focus for the government.

However, there is a downside to the rising importance of this source of inflow.

With worker remittances the equivalent of over 6pc of GDP, any disruption to the flow can have serious repercussions for the economy.

This vulnerability is starkly demonstrated in the uncomfortable position Pakistan finds itself in with respect to the request for military help by Saudi Arabia in its offensive against Iran-backed rebels in Yemen.

Worker remittances from the six Gulf Cooperation Council countries, Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman, amount to two-thirds of the total. If the potential ire of these countries is translated to the Pakistani emigrant workers, the pain of adopting ‘neutrality’ could be serious.

Tailpiece: Given the success of the PRI, it is surprising that the scheme has met a half-hearted response from Shaukat Tarin’s successors at the Ministry of Finance.

After stopping agreed payments to the banks for over two years and building up arrears of several billion rupees, the Ministry of Finance has now tweaked the incentives and resumed clearing the backlog of payment arrears to the banks. (It has also now attempted, in a patently disingenuous statement, to take belated credit on behalf of the incumbent finance minister for the success of the PRI scheme).

One hopes for a return to not just more strategic prioritisation at the Ministry of Finance, but also greater intellectual honesty.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, April 17th, 2015

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