LAHORE: A larger portion of remittances are used for non-productive purposes like consumption in Pakistan, said banking industry sources. This tendency of spending indicates the altruistic motive of remittances rather than profit driven, they added.
It may be noted that Pakistan has received record high remittances of $2.768 billion in the first month of the new fiscal year, following the record $23bn remittances during the outgoing financial year. This ($2.768bn) is the highest-ever level of remittances in a single month in Pakistan, the State Bank of Pakistan (SBP) said in its latest data. Prime Minister Imran Khan took to Twitter soon after the SBP announcement and said: "More good news for Pak economy. Remittances from overseas Pakistanis reached $2,768 million in July 2020, highest ever amount in one month in the history of Pakistan. This is 12.2% increase over June 2020 and 36.5 percent increase over July 2019."
Banking sources said a 1 percent increase in remittance growth had lead to 0.021 percent decrease in GDP per capita growth in Pakistan over the period 1977-2016. Therefore, it reflects profit-generating activities regarding remittance inflows in Pakistan.
Banking industry sources said remittances are more beneficial in case of poverty reduction rather than the economic growth. Therefore, remittances could raise domestic consumption and reduce poverty which is beneficial for a country like Pakistan, as the inflow of remittances may raise the income level of the poor people and help to reduce the poverty. Besides, they said, there are some adverse effects of migration, including brain drain, which depresses the average level of skilled and educated workers in the country. Higher migrating countries reflect slow economic growth compared to countries with lower migration rates, they added.
According to sources, the moral hazard problem may be created by remittances which could weaken the incentive to work for recipient families. This tendency, they said, also reduces economic activity, as this procedure makes recipient families dependent on remittances and takes them away from productive activities.
They said increase in remittances can be considered as an increase in non-labour income.
It may be noted that according to the definition of International Monetary Fund (IMF), workers' remittances refer to the value of monetary transfers that is sent from the workers residing abroad for more than one year to the home country and are recorded in different sections of the balance of payments.
Nowadays, remittances become an important and reliable source of external funding and capital accumulation in the developing economy.
Remittances are used to raise national savings, reduce the constraint associated with foreign exchange and balance of payments, and contribute to development budget.
They said the policymakers should convince both remitters and the recipients to invest a larger portion of the remittance flows for the productive purpose, as it appreciates the real exchange rate and decreases international trade competitiveness of a country, which in turn deteriorates the economy. Policymakers should also put more emphasis on migration policies, and require amendment for the proper implication of these policies and the productive use of remittances to secure economic growth, they stressed.
Copyright Business Recorder, 2020
Comments
Comments are closed.