Monday, 20 May 2013
RECORDER REPORT
Decline in overall stock of external debt and liability is normally considered a healthy development for a country. Seen against this background, the news in the
Business Recorder on 17th May, 2013 that stock of external debt and liabilities of the country had declined by seven percent or over $4 billion during the first nine months of the current fiscal year would appear to a good sign for the economy. The fall in the stock of total external debt and liabilities was reportedly due mainly to repayment of loans to international financial institutions, particularly the IMF.
 by the then Finance Minister, Shaukat Tarin, and the then Federal Minister of Overseas Pakistanis, Dr Farooq Sattar, was the best initiative of the last government in the realm of foreign exchange. Housing it in the State Bank of Pakistan instead of Islamabad was also the right step. It helped in keeping the current account deficit in check.
They rose from $6.4 (in 2007-08) to $12 billion (July-April, 2013) as home remittances doubled and started matching the trade deficit. Raising exports and substituting imports is only possible in medium- to long-term; while raising home remittances can give you instant results. At the present run rate, home remittances would aggregate $13.8 billion against the year's target of $14 billion. This shortfall is largely due to non-payment by the Ministry of Finance of the twenty-five Saudi riyals per thousand dollars in equivalent rupee to banks on time. Only under the caretaker government did the then Finance Secretary, Nasir Khosa, release three billion rupees to remunerate banks which are actively participating in PRI scheme. The payment was made after a delay of 13 months while 5.5 billion rupees are still outstanding.
The new government needs to focus on non-debt creating flows and home remittances are one of them. They constitute more than 50 percent of our yearly export earnings. According to the World Bank, last year, migrants sent 401 billion dollars to their families in developing countries. Home remittances not only act as a bulwark against rise in poverty and rightly or wrongly it is the best thing Pakistani expatriates can do for their country.
Pakistan's brawn or its manpower is one of its biggest exports. A significant dip in home remittances can have very negative repercussions on our current account deficit. For the last five years, home remittances' contribution in easing of pressure on our balance of payment (BoP) has been unbelievable. At present, Pakistan somehow needs to overcome the hump in its forex outflow on account of 3.3 billion dollars to be repaid to the International Monetary Fund by end December 2013. This money has to be somehow arranged by the new government either from friends or the Fund itself. The additional inflow of home remittances in Ramazan from expatriates to their families or floating of a dollar-based Sukuk in the Middle East could help. A listed bond would require more time than an unlisted one but the quantum of floatation of a listed Sukuk can be higher. Perhaps the National Saving Centre could float a dollar denominated instrument for individuals of various tenors on Libor + 300 bps (equivalent to around five percent) return to tap savings of our countrymen who get anywhere from half to two percent return depending on the currency being saved by them abroad. All this forex inflow would be a slow and gradual process. Pakistan requires $3 billion plus before September 2013. A possible solution is to pledge home remittances against a loan from Saudi Arabia. An offer to this effect was made to the kingdom by the last PPP government. But it received no response. Perhaps, PM-elect Nawaz Sharif may be better placed to clinch a similar deal. An arrangement of this kind would give Pakistan the freedom and time to set its fiscal side in order. Going to the Fund will place this country into a straight jacket. However, the new government needs to be clear that sustainable growth of six percent and above is only possible if we address the structural issues hampering our growth potential. PML (N) leadership's approach to push for high profile projects like the bullet-train may be desirable but establishing them with fresh loans is not the answer. Development cannot be transaction-based; it is a process that needs setting up a system with a continuum of things working in tandem. It is a continuous event or a sustained effort aimed at generating employment as well as spurring growth. Investment in education, health, training skills and infrastructure is much more beneficial in medium to long-term than squandering bank loans on yellow cabs or green tractors. Voters have delivered a government with reasonable chance of tackling country's economic imbalances, including a looming balance of payments (BoP) crisis. The incoming government would not only be in a good position to stabilise external finances but also provide a proper policy framework for necessary fiscal and energy sector reforms. It is also expected to have a better chance to reconcile with militants to end militancy in the country. Overseas Pakistanis appear to be very optimistic about the intentions of the new government to rehabilitate economy and would like to support its efforts. The task of the government would become much easier if the rate of increase in remittances could be pushed up sharply by enticing expatriates further. This, with the expected growth of the economy and exports, would enable the nation to breathe more easily and the government to deal with confidence with the outside agencies including the IMF. The inflow of about $14 billion of unrequited transfers a year is no small amount. We must not criticise or feel doubt about something good that has been offered to us in the shape of home remittances. We know the yearly amount of remittances cannot be a complete solution to our BoP and other woes, but we shouldn't look a gif "BoP woes: Do home remittances offer solution?"){kind=icon}
