Fall in remittances

It is a matter of great concern that home remittances sent by overseas Pakistanis continue to decline. According to the latest data released by the State Bank on 10th January, 2017, overseas Pakistani workers remitted $9.458 billion in the first half (July-December) of FY17, compared to $9.688 billion in the corresponding period of last year, depicting a decline of $230 million or 2.37 percent. Major decline in inflows was witnessed from the US, the UK and Saudi Arabia. Home remittances from the US fell by $142 million or 11 percent to $1.305 billion during July-December, 2016 compared to the same period of last year. Similarly, inflows from the UK decreased by 12 percent to $1.094 billion as compared to $1.251 billion during July-December, 2015 while inflows from Saudi Arabia also stood lower at $2.735 billion in the first half of this fiscal year compared to $2.895 billion in the same period of last fiscal year. Remittances received during December, 2016 amounted to $1.584 billion which were also lower by 2.0 percent over November, 2016.
The present trend is of course very disturbing for the economic policymakers of the country. The matter becomes all the more frustrating when exports and FDI are also witnessing declining trends and exacerbating the current account balance of the country. Also worrying is the fact that home remittances are not likely to show a rising trend anytime soon. The Middle Eastern countries which are the major source of Pakistan's remittances are making fiscal consolidation efforts due to lower oil revenues which is negatively impacting funds' transfers from these countries. The restrained fiscal spending in the Arab world is dampening demand for low-skilled workers whereas "localisation requirements" are shrinking employment opportunities for high-skilled workers from abroad. There is also a disruption of flow of funds from abroad due to tightening of US-backed anti-money laundering/anti-terrorist financing laws for global correspondent banking. As for remittances from the UK, a sharp depreciation in the British currency post-Brexit would mean that the inflows will be lower in dollar terms even if Pakistanis keep remitting the same amount. Anyhow, a declining trend in home remittances is a very dangerous development for the country, especially at a time when other components of current account are also showing deteriorating trends. It is not difficult to guess that in a situation like this, C/A deficit of the country would continue to widen, exchange rate of the rupee will deteriorate and the gap in the C/A balance would have to be filled either by increased foreign borrowings at higher interest rates or depletion of foreign exchange reserves of the country. Inflationary pressures could re-emerge, imports may have to be curtailed and the country may again be constrained to negotiate another programme with the IMF with harsher conditionalities.
Although most of the factors impacting the level of remittances are outside the control of the government, there could be few options that could be availed to get out from this difficult situation. Since top functionaries of the government, particularly the Prime Minister and the Finance Minister, are reported to be enjoying very cordial relations with most of the countries in the Middle East, their governments could be persuaded to spare the livelihoods of our workers and maintain the present flow of home remittances. Secondly, the Pakistan Remittance Initiative, a joint initiative launched by the SBP, Ministry of Finance and Overseas Pakistanis seems to have lost much of its steam by now. The scheme needs to be revamped. One of the basic characteristics of the new initiative should be to equalise the interbank rate of the rupee with the open market rate so that expatriates are not tempted to send their remittances through informal channels. And finally, it needs to be recognised at the policymaking level that home remittances could only play a limited role in supporting the balance of payments. The real panacea is the sharp improvement in the level of exports which could lift the country in numerous ways. The Rs 180 billion export incentive package announced by the Prime Minister on 10th January, 2017 is a good beginning and needs to be followed by limiting imports, particularly of consumer items, and enhancing the competitiveness of exports. One fails to understand why our policymakers are so obsessed with keeping the exchange rate unchanged when the exporters and most of the other stakeholders are almost crying for depreciation of country's currency.