KARACHI, Sept 16: Net workers' remittances or the foreign exchange sent back home by Pakistanis living abroad rose by 16 per cent to $669 million in July-August 2004, from $577 million in July-August 2003, data released by the State Bank show.

Overall remittances rose as Pakistanis living in the US and the UAE sent much higher amounts of foreign exchange back home in the first two months of this fiscal year than they had in a year-ago period. See chart.

This big increase in workers' remittances, and that too on the back of higher inflows from two main centres indicate that the remittances may cross the $4 billion mark during the current fiscal year, leaving the initial estimate of $3.5 billion far behind.

Economic managers can take pride in the fact that the remittances from the US and the UAE have shown a rising trend in the first two months of this fiscal year, after depicting a falling trend in the last fiscal year.

In July-June 2003-04, Pakistanis living in the US sent back home $1.226 billion, down from $1.237 billion in July-June 2002-03.And those living in the UAE repatriated $597 million in the last fiscal year, far lower than $838 million that they had sent back home a year earlier.

The remittances from the top two centres had fallen in the outgoing fiscal year chiefly because Pakistanis living there had started using illegal channels of transfer of foreign exchange back home with the help of leading moneychangers.

Over-invoicing of exports had also created pressure on exchange rates in the open market, widening the spread between the inter-bank and open market rates and thus serving as an incentive for those using informal channels for transfer of money back home.

The reversal of this trend in the first two months of this fiscal year boosted remittances from the two countries. The government as well as the State Bank had taken a serious view of a big decline in workers' remittances from the UAE during the last fiscal year and had intensified efforts to raise them.

These efforts included a close monitoring of the open market operators and persuading banks to make handling of workers' remittances faster. The efforts have apparently borne fruits, but there is a need to keep the spread between the inter-bank and open market exchange rate at a level conducive to attracting higher remittances throughout the fiscal year. Experts say ideally the spread should not rise beyond 50-60 paisa, but currently it is around 70 paisa.

Workers' remittances are the second biggest source of foreign exchange earnings after exports. That is why the government is attaching a lot of importance to increase the remittances.

Prime Minister Shaukat Aziz during his visit to Saudi Arabia made a personal appeal to the Pakistanis living there to send money back home through official channels.

A big impediment to attracting higher remittances from overseas Pakistanis is currency smuggling. When foreign currency is smuggled out of Pakistan, it creates a shortage of foreign exchange, pushing up the open market rates of dollars and thereby increasing the gap between the official and open market exchange rates. That, in turn, discourages overseas Pakistanis from sending foreign exchange back home through banking channels.

Both the customs authorities as well as the State Bank need to take concrete steps to check currency smuggling. In the past, employees of leading exchange companies have been found involved in this menace but have not been dealt with strictly.

But on Wednesday, the customs authorities nabbed employees of a major exchange company found involved in currency smuggling and the State Bank suspended the licence of the company on Thursday.

Such measures need to be intensified to keep the flow of workers' remittances rising. A big increase in these remittances is badly needed primarily because Pakistan's trade deficit is likely to cross $4bn, against the initial target of $3bn, due to booming oil prices in world markets.