The once-galloping horses of home remittances are now cantering: in July-January, the year-on-year increase in remittances slowed to 4.13 per cent from 10.83pc a year ago.

Overseas Pakistanis sent back home $13.3 billion in the first seven months of 2019-20, half a billion dollars more than $12.77bn they had remitted in the comparable period of 2018-19. But what pales this achievement is that the growth rate is faltering. The PTI government insists that by the end of 2019-20, total remittances will rise to the targeted level of $24bn. Our merchandise exports also seem heading towards $24bn in 2019-20. In the first seven months of the current fiscal year, such exports totalled $13.5bn.

Combined foreign exchange earnings from exports and remittances should hopefully cover our merchandise import bill if it does not rise past $48bn for the full fiscal year. (Seven-month imports stood around $27.25bn, with a monthly average of less than $4bn).

But the International Monetary Fund (IMF) now wants Pakistan to cut import tariffs, make new free-trade deals and ensure general sales tax (GST) harmonisation. Our government cannot refuse these demands. The Fund has already lowered the tax revenue collection target from Rs5.5 trillion to Rs5.25tr and is in no mood to let the government continue with the current high import tariffs, tightened in 2018-19 to check import growth.

The declining rate in July-January is worrying because 424,979 people went overseas for jobs in this period

The IMF demand that the harmonisation of GST be ensured effectively means the government cannot discourage import growth further via non-tariff barriers, including the planned imposition of higher GST on retail sales of selected imports.

More free-trade agreements at a stage when industrial and agricultural outputs are stagnant, economic growth has slumped and exporters are braving soaring energy costs and high interest rates mean little gains in exports in the near future. So our merchandise trade deficit that shrank to $13.75bn in the first seven months of 2019-20 from $19.2bn a year ago seems set for expansion once again.

The PTI’s economic managers now need to ensure that exports grow faster and cover as much of the import bill as possible so that remittances and foreign investment in government debt papers can be used to finance external debt servicing.

Unless Pakistan gradually increases exports to the level of its imports in the medium term, it cannot substantially reduce the stock of external debt and liabilities — or the external debt servicing cost. If the stock of external debt and liabilities remains high — as it is now at 38.3pc of GDP — and if external debt servicing continues to drain our foreign exchange earnings, then remittances alone cannot save us from another round of deep external sector crisis. External debt servicing devoured about $11.6bn last fiscal year and $3bn in the first three months of 2019-20.

In the short term, making efforts to accelerate flows of home remittances is a good thing because we have a large mass of employable people and its timely absorption in the productive sector is too slow. Slower economic growth in 2018-19 and 2019-20 has also rendered an estimated two million people jobless, according to independent economists and think tanks.

However, for job-creating sustainable economic growth in the medium term, the country must rebalance the three main sources of non-debt–creating foreign exchange inflows i.e. exports, remittances and foreign investment. We need sustainable high growth in exports and foreign investment to minimise overreliance on home remittances. This has become a must to stop the brain drain and absorb our talent pool in export-led industries and in the fields of high-tech research and innovation.

In the short-to-medium term, retaining professionals like doctors, engineers, managers and IT experts in the domestic economy is also necessary to uplift the social sector and meet sustainable development goals (SDGs). The IMF, according to a Dawn report, has once again reminded Pakistan of its responsibility to take ownership of SDGs.

The declining growth rate of remittances should ring alarm bells in policymaking circles. Slower growth in remittances in July-January is worrying because 424,979 people left Pakistan for overseas jobs during this period.

Every government claims that the flows of remittances can increase significantly by eliminating the illegal business of Hundi/Havala. Sometimes licences of foreign exchange companies that are found involved in Hundi/Havala are also suspended — and even cancelled. The State Bank of Pakistan (SBP) may consider publishing quarterly reports on volumes of remittances being handled individually by all eligible foreign exchange companies, including those owned by commercial banks. This would bring in additional transparency in the foreign exchange regime to the satisfaction of all concerned, infuse healthy competition among foreign exchange companies and help the nation understand the actual role of these companies vis-à-vis remittances.

Greater transparency is always rewarding. And a lack of it is punished — often with a time lag.

Published in Dawn, The Business and Finance Weekly, February 17th, 2020