Rise in remittances

It is fortunate that when the country is facing a tough economic situation, remittances sent by overseas Pakistanis continue to be robust. According to the data released by the State Bank on 10th May, these again crossed one billion dollar mark in April, 2011 after a record figure in the preceding month while the 10-month total inflow also exceeded the annual target of $9 billion.
Compared to the same month last year, home remittances at $1,030 million during April, 2011 were higher by as much as $275 million or 36.34 percent and lower only by $23 million than the highest ever amount of $1,053 million received in March, 2011. More significant was the fact that remittances by overseas Pakistanis have been continuously rising in the recent period and stood at $9,046 million during July-April, 2011, showing a sharp increase of $1,740 million or 23.81 percent when compared with $7,306 million received in the same period of the previous year.
It also needs to be noted that remittances during the current year so far are even higher than $8,906 million received in all the months of 2009-10. Country-wise, remittances in July-April 2011, period from UAE, Saudi Arabia, USA, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounted to $2,091 million, $2,086 million, $1,678 million, $1,063 million, $991 million and $291 million as compared to $1,663 million, $1,526 million, $1,462 million, $1,033 million, $735 million and $210 million respectively in July-April, 2010 period. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries were also higher at $846 million as compared to $676 million in the same period last year.
A steep increase in home remittances during 2010-11, particularly their highly encouraging trend in the latest months, is of course a very welcome development for the country. At the present rate, the amount sent by overseas Pakistanis could be more than $11 billion during FY11 or almost half of the export receipts of the country and contribute a great deal to bring about a significant improvement in the current account of the country.
Jump in home remittances could be attributable to a number of factors. Authorities of the country generally take credit for their sharp growth because the State Bank, Ministry of Finance and Ministry of Overseas Pakistanis had launched a joint initiative called "Pakistan Remittance Initiative (PRI)" with a view to facilitate the flow of remittances through formal channels. They believe that this initiative has now started to yield highly positive results.
However, more potent factors behind this development, in our view, could be closing of gap between official and unofficial rates of exchange and the overall political uncertainty abroad, especially in the Middle Eastern countries where most of our workers are employed. Such an argument could be made on the basis that rise in remittances from Middle Eastern countries seems to be more pronounced than the rest of the world. A perception is also gaining currency that funds may be flowing into the country to finance terrorist activities or whiten the tainted money. If true, then this is a very disturbing development because of its severe negative fallout on the economy in future and a big question mark in terms of sustainability of inflows.
Anyhow, whatever the reasons, high level of home remittances would be helpful in improving the current account balance of the country, maintaining the foreign exchange reserves at a comfortable level, stabilising the exchange rate of the rupee and reducing the need to borrow from outside sources. Since home remittances are unrequited transfers, there will also be no encumbrance on our foreign exchange reserves or addition to external debt.
Impressed largely by the steep rise in home remittances, the State Bank had projected a current account deficit of 1.0-1.5 percent of GDP during FY11 in its last quarterly report, but the latest evidence shows that the country could end up with a surplus. Such an encouraging outcome was also possible due to the narrowing of trade deficit during the year. However, while welcoming these positive developments, there is need to analyse the factors behind this healthy turnaround and also make efforts to ensure that the improvement is deeply entrenched and longer lasting. It will be easier for the government to tackle other problems when the external sector front is well guarded.