Increase in home remittances

At a time when most of the economic indicators, like the budget deficit and inflation are showing worsening trends, remittances sent home by overseas Pakistanis continue to give much needed support to the external sector of the country. These amounted to $926.9 million during November, 2010, up by 24.78 percent or $184.1 million, when compared with $742.9 million in the same month last year.
Also, the amount of home remittances received during the month was the second highest in a single month, or only about $6 million less than the historic amount of $933.1 million received in August, 2010. Such a high level of remittances was not a fluke either. During the first five months of 2010-11, home remittances have shown a steady growth of 15.54 percent, reaching $4.43 billion or $595 million more than received in the corresponding period last year.
The inflow of remittances during this period from UAE, Saudi Arabia, USA, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounted to $1,045.3 million, $935.8 million, $841.3 million, $530.3 million, $496.1 million and $147.6 million respectively as compared to $854.2 million, $708.4 million, $797.2 million, $544.9 million, $408.9 million and $123.9 million respectively received in July-November, 2009. Remittances from Norway, Switzerland, Australia, Canada, Japan and other countries also went up to $431.9 million as compared to $394.6 million in the same period last year.
In a country confronted with the perennial problem of a balance of payments deficit like Pakistan, a hefty rise in the amount of home remittances could only be termed as a very positive development. Such a healthy increase is all the more encouraging at a time of a global recession when employment opportunities for the expatriates and their earning potential are generally shrinking.
Continuation of the present trend in home remittances could fetch the country about $10.5 billion during 2010-11 from this source and contribute a great deal in reducing the current account deficit to a sustainable level and maintaining foreign exchange reserves of the country at a reasonable level. Also, the fact cannot be denied that without such a positive development, the exchange rate of the rupee would have depreciated further, pushing up the inflation rate still higher and making the lives of ordinary people much more miserable. Besides, it needs to be pointed out that the inflow of foreign exchange from home remittances is an unrequited transfer and reduces the country's dependence on foreign borrowings to finance the current account deficit correspondingly. Needless to say that negotiations with the IMF for a programme would also be a lot easier if the country's authorities are more confident about the robustness of foreign exchange inflows from this source.
Looking ahead, there is absolutely no doubt that vigorous efforts are needed to be made to ensure the continuation of rising trend in home remittances for the larger economic interests of the country. In this connection, credit is generally given to a joint initiative by the State Bank, Ministry of Finance and Ministry of Overseas Pakistanis, called the "Pakistan Remittance Initiative (PRI)," to facilitate the flow of remittances through formal channels. While such an initiative may have helped to increase the amount of home remittances to a certain extent, the more potent factors, in our view, could be the market determined exchange rate offered by the formal channels, a crackdown on money changers indulging in dubious business and a stringent monetary policy that has kept the domestic interest rates attractive, relative to the rates of return available in foreign countries.
Some of the analysts even go to the extent of attributing the rise in home remittances to the alleged funding received from foreign sources to aid and abet terrorism in the country but we have no way to verify such accusations. However, what could be said with certainty is that every dollar of home remittances is more than welcome when the trade balance of Pakistan has deteriorated, and foreign investment has declined sharply during July-November 2010 and the country is so much dependent on foreign aid and loans. In an adverse situation like this, the government needs to monitor the situation very closely and continue to improve the policy framework to exploit the full potential of this vital source of foreign exchange.