The curious case of rising remittances

Remittances are in and growing still. But whats the verdict? September saw an inflow of $806 million taking the first quarter inflows to $2.34 billion, up 25 percent over the same period last year. It is striking to note that in the past ten years of ever increasing remittances, Pakistans labour force participation (LFP) has increased slightly and has not shown any sign of negative growth.
This goes against the theoretical view that LFP should drop with an increase in remittances, as higher savings from workers abroad enable their family at home lead a relaxed life. Although, it would be silly to purport a positive relationship between the two variables looking at this data alone, its interesting to throw into the mix. This can only point to the positive steps being taken by the government to ensure that remittances flow into the proper institutions via proper channels.
The recently launched Pakistan Remittance Initiative aims to do just that. Its biggest challenge will be to ensure that aside from increasing the deposit size of banks, the money is channelled into the private sector and in turn utilised to achieve real growth in the economy. The private sector is currently suffering from the crowding out effect thanks to increased government borrowing.
But the question is that how long this surge in remittances will continue and should economic managers rely on it endlessly. Amongst the many possible factors behind this phenomenal growth in remittances is higher savings of Pakistanis abroad; a feeling of insecurity in the prevailing geopolitical climate of the post 9/11 world.
Its hard to pick out a clear winner from the sea of possible extrinsic or intrinsic factors, but its safe to say that these inflows won slow down any time soon. Yet, if they do, don be too surprised as inflows from the US - by far the biggest contributor to Pakistans remittances account - have already started tapering off - down nearly 19 percent over the first quarter last year.
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