Remittances remained above the $2 billion mark in December 2020 for the seventh month in a row. In the first half of 2020-21, inflows totalled $14.2bn. The amount was about 25 per cent higher than $11.37bn received in July-Dec 2019.
The half-yearly inflows of remittances that surpassed merchandise exports of $12.1bn by a wide margin came as a pleasant surprise. Not many were expecting this due to a decline in the global economy amidst the Covid-19 pandemic. A slump in Pakistan’s manpower exports — from 625,203 in calendar year 2019 to 224,705 in calendar year 2020 — made the unprecedented increase in remittances all the more appreciable.
Analysts cite several factors to justify it: Pakistanis coming back from host countries after losing jobs are bringing back their savings; they are sending more money back home to provide greater financial support to families as Pakistan’s domestic economic growth turned negative; an effective crackdown on illegal transfers of foreign exchange has pushed up official inflows; and the central bank’s scheme to attract remittances through Roshan Digital Accounts for overseas Pakistanis has started showing the impact.
Each of these factors has undoubtedly contributed to the meteoric rise of remittances. But will remittances continue to grow this fast? Or will the growth rate will decelerate at some point? Now is the time to separate the one-off factors of remittances’ growth and focus on structural changes made in the remittances’ regime that have so far kept them growing.
Our external borrowings will go down if a reasonable portion of remittances goes into savings and investment
This requires a closer examination of the relevant datasets. This also requires inputs from the Pakistani diaspora. The State Bank of Pakistan (SBP) is busy doing both. Banks are now reporting to the SBP greater details of remittances to help central bankers assess the patterns of growth and the SBP has launched an online survey seeking input from expatriate Pakistanis.
The two exercises should shortly provide a better understanding of what structural positives pushed up remittances besides giving a clue about what could be done to maintain and improve them. The SBP may also consider investigating another caveat: did some moneyed people in Pakistan bring back their funds stashed abroad — routing the same as remittances of their connections in the Pakistani diaspora? And if so, whether this violated any regulations of the central bank.
For maintaining the health of the external sector, Pakistan badly needs to maintain the current level of $2bn-plus monthly remittances and gradually take it to the next level of, say, $2.5bn a month or $30bn a year. The SBP online remittances survey and development of new, dissected datasets of foreign exchange inflows from overseas Pakistanis can be helpful in this regard. The survey results should give an idea of the income brackets of Pakistanis working abroad besides ascertaining the factors that lead them to send larger sums back home. And, a deeper look into the remittances’ pattern seen so far should help the SBP forecast more accurately how much room is available for boosting monthly remittances — and what else is required to be done to ensure it.
The stricter scrutiny by the SBP and the FIA of foreign exchange companies has so far helped a great deal in squeezing room for the Pakistani diaspora for sending foreign exchange via illegal channels of hundi/havala. The two state institutions must not lower their guards and continue to make transactions of these companies as much transparent and compliant to regulations as possible. This has become all the more important for the country to qualify for the removal from the grey list of the Financial Action Task Force (FATF).
Fast and sustained growth in remittances is not possible if a country fails to maintain growth in manpower exports — more importantly, if it cannot export quality manpower i.e. people who can earn higher per-person incomes. This is where Pakistan’s performance remains poor.
According to the Bureau of Immigration and Overseas Employment, the size of the Pakistani diaspora is now close to 11.4 million but less than 50pc of them happen to be highly qualified, highly skilled and skilled people. More than 50pc are semi-skilled and unskilled workers. This occupational breakdown would have looked ideal had Pakistan been a highly industrialised country with ever-growing number of jobs available at home to professionals and highly skilled people. That is not the case. So all efforts should be geared towards producing an increasing number of professionals, skilled and highly skilled people within the country and improve the country’s economic diplomacy so that more of them could be sent abroad for jobs. That is a sure way of boosting per-person remittances. Recently, the government created a high-powered economic diplomacy department in the National Security Division and Policy Planning. This platform can be used not only for removing diplomatic roadblocks to sustainable growth of exports but also to remittances Sustainability of growth in remittances is also linked with where these remittances end up in the domestic economy. If all of remittances are consumed in day-to-day expenses of beneficiary families, this will only boost consumerism — and help in consumption-led economic growth.
But if a reasonable portion of remittances goes towards savings and investment, it will be more helpful and reduce our dependence on external borrowings.
The PTI government is trying to promote such savings and investment by facilitating and incentivising overseas Pakistanis to use their remittances’ accounts for investing in Pakistan’s debt, equity and mortgage markets. Long-term success of this policy, however, depends on close coordination of fiscal and monetary authorities and overall political stability.
Published in Dawn, The Business and Finance Weekly, January 18th, 2021