Remittances from overseas Pakistanis are on the rise. Is PTI the reason?

PTI is said to be popular among overseas Pakistanis but is that translating into a rise in remittances?

Updated Nov 18, 2019 10:20am

Remittances to Pakistan have been growing steadily since 2005 and whereas regimes with varying outlooks and strategies have been in power in the country, their distinct political and economic outlooks do not appear to have any noticeable impact on this reality.

The Pakistan Tehreek-i-Insaf (PTI) routinely highlights its better-than-the-rest rapport with the expatriate community and an unprecedentedly large rally in suburban Washington, DC, earlier this year that attracted thousands, offers proof for such claims.

However, what does that ultimately mean? And one question to ponder is whether there exist tangible benefits to Pakistan of the party's popularity with overseas Pakistanis.

A proxy measure of PTI’s better brand awareness abroad could be the scale of remittances. The underlying hypothesis being that the party's greater popularity and brand recognition among expatriates should result in a higher increase in the growth rate of remittances. This is also the image that the party has itself promoted time and again.

'Same difference'

Recent data does not offer robust evidence for a noticeable uptake in remittance volumes now that the party has completed a year in power. The volume of remittances has increased under PTI's rule but that increase follows the growth trajectories observed earlier under the 2008-2013 and the 2013-2018 tenures of the respective PPP and PML-N governments. Therefore, the data-driven conclusion, although preliminary because PTI has been in power for only a year, does not support a noticeable increase in remittances.

As a matter of fact, remittances in the third quarter of 2019 declined to US$5.478 billion from US$5.747 billion in the preceding quarter. And a comparison of the third quarter remittances in 2019 with the third quarter remittances in 2018 also shows a decline in 2019. What could be the reason(s)?

Factors impacting remittances

The fact is the flow of remittances depends on the economic conditions at both ends of the transaction. Factors at the origin, where the expatriate workers earn a living, such as wage increases, job losses, or other life events would influence their savings, a part of which is ultimately remitted to Pakistan.

The Gulf region is the primary contributor for remittances to Pakistan, with Saudi Arabia and the UAE as the largest sources. Given the overwhelming reliance of Gulf economies on oil exports, a decline in oil prices can lead to job losses and lower incomes for the labour force. Furthermore, declines in oil prices and exports may also result in impacting the conditions of foreign workers.

Also read: Which political party has been the best for Pakistan's economy? Trade stats reveal all

Though the preceding argument suggests a direct link between oil prices and remittances, the empirical evidence is rather nuanced. For instance, a review article published in the Economic Notes earlier this year contends that “remittance flows to major remittance recipients in Mashreq, Pakistan, and Yemen fell only modestly following large declines in oil prices and recovered quickly in line with oil prices”. Hence poor economic outcomes in the source countries impact remittance flows negatively, but that impact has been limited.

At the destination end of the transaction, the flow of remittances is largely influenced by the intensity of the kin’s need. Births, deaths, tragedies, celebrations, and other life events may influence the temporal intensity of remittances. One can extend the idea to argue that financial hardships resulting from economic or other stimuli are likely to increase the flow of remittances. Economists Giulia Bettin and Alberto Zazzaro have reached similar conclusions in the Journal of Development Studies.

Moreover, marginalised communities in Pakistan often bear the brunt of a multitude of economic, environmental, and other geopolitical risks. Research by economists Mazhar Yasin Mughal and Amar Iqbal Anwar, published in the journal Defence and Peace Economics, reveals that an increase in terrorist violence in Pakistan, which contributed to destabilisation in economic and consumer activity, correlated with an increase in the financial hardship of low income households in Pakistan. The authors also found a strong correlation between the increase in violence and an increase in remittances to Pakistan.

The aforementioned, albeit non-exhaustive, list of the determinants of remittances does not suggest any role for the charisma of a leader or the popularity of a political outfit. To conclude as such would be a mistake.

A reliable source of foreign exchange

When faced with macroeconomic challenges, such as trade deficits and balance of payment crises, struggling economies are often desperate for foreign exchange. In such situations, remittances, when processed through formal channels, can be a reliable source of foreign exchange that could provide some degree of macroeconomic stability.

Former governor of the State Bank of Pakistan, Tariq Bajwa, was acutely aware of the macroeconomic role of the millions of transactions conducted by expatriates bringing small funds to family and friends back home. Earlier this year, he had warned that “it would be hard to manage the country's economy if foreign remittances were to fall below the $20 billion mark” per fiscal year.

In Pakistan’s case, remittances account for six per cent of the GDP. Exports, in comparison, accounted for 8.5 per cent in 2018.

Explore: Pakistan's debt policy has brought us to the brink. Another five years of the same is unsustainable

Ten years ago, the government had launched the Pakistan Remittance Initiative (PRI) to encourage the flow of remittances through official channels. Discouraging sending money through unofficial means in its campaigns and messaging, the government has been trying to get more and more expatriate workers on board so they use state-sanctioned avenues to process remittances. Now, the PRI offers several incentives to users, including a Mobile Wallet that promises fast transactions and a 2-minute mobile balance for every US dollar remitted.

However, the idea that a novelty factor or 'charm' is at play when it comes to remittances does not seem very valid and merits an evaluation in the light of data that suggests otherwise. Finding ways to improve the speed and flexibility of direct transactions at lower rates may attract more traceable remittances. Whereas, the government’s drive to increase tax revenue by tracking financial transactions may counteract its efforts to increase remittances through formal means.

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Murtaza Haider is a professor of Real Estate Management at Ryerson University and a Director of Regionomics Inc. He is also a syndicated columnist with Post Media and writes a weekly column on urban economics in Canada. He is the author of the book Getting Started with Data Science: Making Sense of Data with Analytics.


The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (34) Closed

Sayyed Zakir Ali Rizwe
Nov 16, 2019 11:06am
Besides the very reasons sighted to have an impact remittances, significant contribution rests upon community(s), acceptability/respect of expatriots, overseas /chamber of chamber activities, market reach etc. PTI has taken steps to both, improve use of formal channel and make it profitable; but the stemming stimulus would be through Pak/I image outside... a strong foot of IK
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Mustansir
Nov 16, 2019 11:27am
There is no scientific correlation between remittances and PTI government. Period! The matter of fact is that there is no job creation taking place in the country, there is no industrialization on the cards (small textile unit owners have already moved to Bangladesh), skilled and non-skilled workers are going abroad to earn a living (even people are reaching in EU illegally to get a job); all people overseas are sending money; hence an increase in the remittances!
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Syed A. Mateen
Nov 16, 2019 11:31am
The most unfortunate part of sending remittances through official means is that despite the money being sent by overseas Pakistanis is 100% legal and this money is also being questioned by the State Bank of Pakistan and other government departments. People don't see any light at the end of the tunnel due to tug of war and war of words between the members sitting on the treasury benches and opposition leaders in National Assembly and on TV channels. After Fawad Chaudhry, Hafeez Sheikh also categorically mentioned that government cannot provide jobs to unemployed and it can only create atmosphere for creation of jobs, though PTI during election campaign repeatedly mentioned that it will provide 1,00,00,000 jobs when it will come into power. The performance of government after a year and few months is not upto the expectations of the nation as at many occasions PM Imran Khan have taken many U-turns which has drastically decreased PTI's popularity. No one knows where it is going to end
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Keenobserver
Nov 16, 2019 11:35am
I for one can attest that there is a sense of optimism and trust on government with Imran khan in place, and my overseas friends have increased transactions to Pakistan. Ministry of Overseas Pakistani seem to have stimulated and invited investments, which is also encouraging.
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A.Fiaz
Nov 16, 2019 11:49am
Yes ofcourse IK is the reason. Many a young talent has escaped abroad to get rid of the suffocating situation our country is facing. It's no wonder they have to send money back to take care of the families better than before.
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Huma
Nov 16, 2019 11:55am
Yes because the overseas Pakistanis have their trust in the leadership of Imran Khan
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Atif
Nov 16, 2019 12:12pm
Higher interest rates attract higher fund inflows.
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Punj
Nov 16, 2019 12:14pm
Fact remains PTI has a solid backing of NRPs
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Zak
Nov 16, 2019 12:26pm
Under PTI thee remittances would have reached $8/9 billion but the economic downturn has affected many expatriates. Definitely there is more confidence and comfort in sending money via official exchanges then through unofficial middlemen.
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Chinto Babu
Nov 16, 2019 12:27pm
Author missed very important point about IT services which are on ever increasing
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sfomann
Nov 16, 2019 12:44pm
Yes PTI And Imran Khan is the main reason I am sending more money back to pakistan and through legal channels.
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MG
Nov 16, 2019 02:30pm
The trend is not changed and look at the graph. I don't think there is role of any government. Also need to check if money laundering is the reason....
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Ali
Nov 16, 2019 03:54pm
The increase in remittance is probably because of the expat levy imposed by some of the gulf countries. Before those people who were keeping their families with them didn't have to send money to Pakistan, but now due to expat levy which stands at SR.400 per family member, people had to send there families to pakistan. So the amount they used to spend on their families in gulf, they are now sending to their families in pakistan.
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Ali Sabir
Nov 16, 2019 04:17pm
Remittances are on the rise in lieu of new employment in Pakistan.
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Darth_Human
Nov 16, 2019 04:32pm
Has it occurred to you that this could be because of the number of smart, hard working Pakistanis leave the country is increasing.
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Ash Man
Nov 16, 2019 04:38pm
It is laughable to even suggest that pti is the reason for increasing remittances. The increase does not even cover the inflation and cost of living.
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Ibrar Malik
Nov 16, 2019 04:56pm
My single reason for start visiting Pakistan again after more then 10 years and start invest and send money to through legal channels is Imran Khan! Gives me hope, and I see this as a contribution from my side. Everyone I know abroad have the feeling!
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AllahJi
Nov 16, 2019 04:58pm
Off course PTI is the reason. Look at what they have done to the economy.
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Habib A. Zuberi, PhD
Nov 16, 2019 05:26pm
@Atif, also increase the cost of borrowing for investment. The rate of interest, other things being equal, settles on the basis of demand for funds and availability of funds in the market.
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SAK
Nov 16, 2019 05:30pm
Primarily driven by the massive devaluation along with higher interest rates, stable real estate prices, and faltering capital market. Cutting down imports and boosting remittances is not the long term solution. Mindset needs to change more towards growing production, manufacturing, and ultimately exports.
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Habib A. Zuberi, PhD
Nov 16, 2019 05:39pm
@Atif, also is ncreae cost to borrow funds.
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M. Saeed
Nov 16, 2019 05:58pm
The slope of rising graph of remittances shows a slight decline during PTI's tenure, so far.
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M. Saeed
Nov 16, 2019 06:04pm
Instead of inviting foreign investments in bonds at 13.25% interest rate, which will go back to the foreign investors, Government should have opened the foreign currency National Savings Certificates at the same rate of Halal Profit of 13.25%, which would increase the foreign investment in schemes at unprecedented rate, while keeping the profits within the country.
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Perincheri gopinathan
Nov 16, 2019 06:14pm
Devaluation is the only reason for increase in remittances. No political party or any politely leader has any influence on overseas remittances. Goes only by enlightened self-interest
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tarik
Nov 16, 2019 06:32pm
No it was nawaz & zardari’s arrest.
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Bangbang
Nov 16, 2019 06:49pm
People send money back home so their extended family can survive in these tough times. Most oversees Pakistanis except in the middle-east not going to come back to live in Pakistan.
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Justicefirst
Nov 16, 2019 08:06pm
There is considerable decline in unofficial outward remittance because of current government stringent actions and better remittance rate,we will see reasonable upward inward remittance from overseas Pakistanis.
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Sheikh Waqar ul Hassan
Nov 16, 2019 08:51pm
Weak Rupee the only reason
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Saqib
Nov 16, 2019 11:46pm
Actually its because most folks are heading outside of the country due to the chaos created by the current government, thus more remittance.
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Waseem Sarwar
Nov 18, 2019 10:11pm
Being an ex-pat myself, no one cares who is ruling Pakistan when they send money to take care of their family. It's all about the natural cycle of events which is explained in the article.
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Mark
Nov 18, 2019 11:13pm
A Big no!
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Syed Ali
Nov 19, 2019 07:44am
One reason for the increase in remittance is rise in cost of living in Pakistan which require much more help from the earners of families working abroad.
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Musti Sheikh
Nov 19, 2019 08:48am
The expatriates believes that the PTI Government is not corrupt like we have in the past and is implementing sound policies for the good of common peoples.Let us not criticize the Government for the sake of criticism, but with some objective to improve the economy and living standard of Pakistani peoples. We should not expect miracles from PTI Government during such a short duration,any well design economic plane take approximately two to three years to be fully implemented and reach to its fruition.
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Baltistani
Nov 19, 2019 10:15am
We are using legal channels to send our earnings. we believed, PM is doing his best to put the economy on right track.
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