Shielding the saviour - remittances

Being amongst the top 10 recipients of migrant remittances does not fend off the risks that tag along. With greater reliance on ever growing home remittances to drive up the foreign exchange reserves, the regulators must keep sharpening the claws: the responsibility to tame down the $4 billion plus informal market for remittances is indubitable.
More specifically, the tightening of the screws of the system is necessary as remittance receipts are undoubtedly a cushion for the much needed foreign exchange reserves. Despite economic slowdown both in United States and countries in the European Union, the expatriates sent in 12.5 percent more money during the first half of FY13 touching the $7 billion mark, compared to similar period last year.
And the optimistic outlook suggests that the ongoing growth in remittances from overseas Pakistanis will cross another psychological mark of $16 billion. This is in sync with the World Banks latest forecast where official remittances flow to developing countries would rise by eight percent and 10 percent year on year in 2013 and 2014 respectively.
In the past, remittances have been the most stable inflows compared to other forms of foreign exchange inflows like FDI, portfolio investment, and ODA. According to an IMF paper, the receipts from overseas Pakistanis are large enough to finance around 80 percent of the countrys oil imports and a save the current account.
Where many experts have the opposing opinion, many also reckon that the relaxed monetary policy in the country might just make Pakistanis residing abroad hesitant in shifting their savings to the country. Majority of the money from abroad is kept as risk free deposits.
Another holding-back factor is the inflation and the depreciating rupee versus the dollar that affects the real value of this precious foreign exchange. And this is why a trend towards maintaining a foreign currency account is developing.
Tightening the economic and institutional noose makes a lot of sense amid exogenous threats like the recent decision of the Saudi government for the imposition of tax on non-Saudi workers earnings. If not in the short term, the shift in the Saudi tax regime will adversely affect the inflows in the country in the medium to long term.