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Pakistan’s earning, through its expatriate workers’ remittances, has started to decline after reaching an all-time-high of $4.2 billion in the last fiscal year (July/June 2002/03).
The State Bank has released July-October 2003 figures for workers’ remittances that stand around $1.235 billion, 5.3 percent less than $1.304 billion received a year ago. But here we will use the figures relating to July-September 2003, the first quarter of this fiscal year.
This will help in comparing Pakistan’s workers’ remittances with those of India, because the latest figures available for Indian workers’ remittances relate to April-June 2003, the first quarter of Indian fiscal year. In July-September 2003, Pakistan received $906 million workers’ remittances down 13.7 percent from $1.05 billion received in a year-ago period.
Both figures include a nominal amount of remittances coming in through encashment of, and profit earned on the Foreign Exchange Bearer Certificates and Foreign Currency Bearer Certificates.
If these are excluded, then the actual workers’ remittances in July-September 2003 stand around $890 million down 14.6 percent from $1.043 billion in July-September 2002. As against this, Indian workers’ remittances in April-June 2003 rose 17.4 percent to $4.151 billion from $3.535 billion in a year-ago period.
If Indian workers’ remittances keep this pace the full fiscal year remittances in April/March 2003/04 will surpass the last year’s mark of $14.807 billion. So far the volume of workers’ remittances is concerned, there is no point in comparing the remittances received by India and Pakistan for simple reason that India’s population is seven times higher than that of Pakistan.
But it is quite logical to compare the rates of growth in workers’ remittances of the two neighbouring countries.
BASIC DIFFERENCE: Before we discuss what exactly is inhibiting the growth of the remittances of expatriate Pakistanis at a time when Indian workers’ remittances are on the rise, we should keep one thing in mind. After the September 11, 2001 terrorist attack on the United States, Pakistanis living abroad got more panicky than the Indian expatriates did, because Pakistan’s relations with Taliban had placed it at an awkward situation.
So the percentage of one-off panic-transfers in inward remittances of overseas Pakistanis was far higher than of the Indian workers’ remittances. Besides, the government of Pakistan amended relevant rules to assure the holders of foreign currency accounts that they would not be required to disclose the sources of their income.
This made overseas Pakistanis, including those who were making one-off panic-transfers, quite confident in sending back home big amounts of foreign exchange through official channels. The resultant increase in foreign exchange inflows made it possible for the banks to quote an exchange rate to the overseas Pakistanis equal to the one existing in the open market—and at times better than that.
The result was that even those overseas Pakistanis who earlier used to send money back home through money changers, to get a better exchange rates, started transferring foreign exchange through official channels. And inward remittances shot up.
The increase in the workers’ remittances seen in the post September 11, 2001 situation, was also due to reverse capital flight. These remittances included hundreds of millions of dollars worth ill-gotten, tax-evaded funds that Pakistanis had earlier parked abroad.
What had facilitated this reverse capital flight was that the rates of return on investment in the US as well as in the UK and the Euro-zone had fallen sharply. On the other hand, increased inflow of foreign exchange primarily through overseas workers’ remittances had improved overall economic situation in both India and Pakistan.
So, whereas one-off panic-transfers were the hallmark of the early boom Pakistan saw in its overseas workers’ remittances, it was largely an inverse capital flight that fueled a phenomenal growth in Indian workers’ remittances.
Now as we see, the days of one-off panic-transfers are seemingly over, the inverse capital flight continues. Naturally then, the workers’ remittances of India are growing faster than Pakistan’s.
HOME BIAS: Besides, it seems that the non-resident Indian investors have a stronger home bias than their Pakistani counterparts. Several factors are apparently responsible for this including the difference between the political status and situations of the two nations. But what matters more is the fact that Indian financial sector is much more developed and mature to offer better investment opportunities to its non-resident citizens than Pakistan’s financial sector is.
It is encouraging, however, that lately the State Bank of Pakistan and the Securities & Exchange Commission of Pakistan, the two key regulators, have taken a number of steps to expand and diversify Pakistan’s financial sector. In fact, one of the reasons for a slowdown in the workers’ remittances has been that the economy has not been able to absorb completely and gainfully the impact of a dramatic increase in these remittances.
Higher inflows of workers’ remittances have pushed up the liquidity levels to new peaks-but the impact of this phenomenon on real sector growth is not much pronounced as Pakistan’s economy is currently undergoing a transitory phase.
That is also why the pace of inflow of large volumes of foreign exchange from overseas Pakistanis has slowed. The Indian economy, on the other hand, has the potential to absorb increasing liquidity in the wake of larger workers’ remittances much more efficiently.
Banladesh threat: Lately, neighbouring Bangladesh has also emerged as a strong competitor of Pakistan in the world market of workers’ remittances. Expatriate Bangladeshis sent back home $1.038 billion in July-October 2003.
This shows that Bangladesh is getting closer to Pakistan in attracting workers’ remittances. Pakistan’s net workers’ remittances in July-October 2003 stood at $1.213 billion. Like Pakistan and India, Bangladesh too had started experiencing a surge in its overseas workers’ remittances in the post September 11, 2001 period.
The country, whose population at 15 million is only slightly higher than that of Pakistan, had received $1.882 billion workers’ remittances in fiscal year July/June 2000/01. This figure moved up to $2.501 billion in 2001/02 and then to $3.062 billion in 2002/ 03.
Compared to this, Pakistani workers’ remittances that stood at only $915 million in fiscal year 2000/01 more than doubled to $2.3 billion in 2001/02 and then shot up to a an all-time high of $4.108 billion in 2002/03.
As discussed earlier, some key reasons for this record growth in workers’ remittances were Pakistan-specific and related to the post September 11, 2001 global situation. That was why, the growth in Bangladesh’s workers’ remittances was comparatively much lower in the last two fiscal years.
But as is evident from the latest figures, Bangladesh is now getting closer to Pakistan in this area. The policy makers must explore the reasons for this development and take appropriate measures to maintain Pakistan’s supremacy over Bangladesh in the remittances’ market.
Banks’ working: One way of increasing workers’ remittances is to make banks more efficient in handling these remittances. The State Bank does collect figures of workers’ remittances handled by individual banks. It would be quite appropriate for it to ask the banks receiving lower inflows of workers’ remittances to explain the reasons for it.
The central bank can also start disseminating bank-wise breakup of inflow of workers’ remittances. That will encourage those banks that attract larger inflows of remittances to perform even better and set an example for others to follow suit.
Banks can also post on their websites the figures for the workers’ remittances being handled by them instead of making claims of how efficient they have been in delivering such remittances at the doorsteps of the recipients. That may generate further business for the banks handling relatively large volumes of these remittances.
Exchange companies: One of the basic purpose of introducing the concept of exchange companies was to check inflows of foreign exchange through hundiwalas or those involved in illegal transfer of money. This purpose cannot be achieved fully if the exchange companies remain handicapped in performing their duty as an official channel for handling remittances.
Owners and operators of exchange companies say that there is one big obstacle in their way of attracting workers’ remittances from abroad.
They say that the Central Board of Revenue is yet to amend rules to treat the remittances brought in through exchange companies at par with that received through banks. The amendment will give the same immunity from disclosure of sources of income to overseas Pakistanis willing to send money back home through exchange companies that is available to those who use banks for this purpose.
This will help increase workers’ remittances particularly from the Middle East where most of the exchange companies have strong business links.
