EDITORIAL: Home remittances registered a 32.89 percent growth July-December 2024 against the same period the year before. In total terms, remittance inflows were 17.845 billion dollars during the first six months of the current fiscal year as opposed to 13.845 billion dollars in the same period the year before and 14.435 billion dollars in July-December 2023.
The percentage rise July-December 2024 surpasses the rise in July-December 2021 of 24.9 percent, which should form the basis of comparison as inflows were allowed to suffer dramatically in 2022 due to the then Finance Minister Ishaq Dar’s flawed policy to intervene in the foreign exchange market in spite of the dwindling reserves that plummeted to a low of under 3 billion dollars, giving rise to multiple exchange rates that, in turn, led to the remitters using the hundi/hawala system instead of the official channels.
Remittances rose in July-December 2023 as the Dar policy was abandoned after agreement with the International Monetary Fund team for the 3 billion dollars nine-month-long Stand-By Arrangement.
If one projects the first six months remittance inflows till the end of the fiscal year on 30 June 2025 then total remittances would be around 35.690 billion dollars, higher than the fiscal year 2021-22 total of 31.2 billion dollars by 4.45 billion dollars.
True that the government not only abandoned Ishaq Dar’s policies but also further incentivised remittance inflows through official channels yet an Asian Development Bank (ADB) working paper dated July 2024 titled Understanding the Drivers of Remittances to Pakistan noted that: “we identify economic activity, domestic interest rates, and domestic inflation as having significant effects on remittance growth. We also find that the relative importance of these macroeconomic drivers has shifted over time — particularly during the deep crises of the Global Financial Crisis (2007-08) and the Covid-19 pandemic.
Additionally, we find that remittances are largely influenced by structural factors outside of the variables identified in our model and that migrants’ motivations, as identified in the microeconomic literature, likely underpin the persistence of remittance flows.“
Today the government’s claim that consumer price index is a low of 2.4 percent (January 2025) does not take account of the fact that wages have stagnated in the private sector since the onset of Covid-19 in the first quarter of 2020 (comprising of 93 percent of the country’s entire workforce as opposed to the 7 percent paid at the taxpayers’ expense who have been budgeted a pay rise higher than the rate of inflation every year since) while unemployment has risen to over 10 percent, which explains the continued exodus of Pakistanis to distant shores at the cost of their very lives has not abated. Interest rates have come down to 12 percent; however, large-scale manufacturing, a major source of growth and employment in formal sector, continues to remain in bleak realm with negative 3.81 percent in November 2024 as opposed to negative 0.71 percent in November 2023.
And finally, the growth rate has also stagnated and the government has optimistically as usual budgeted a 3.5 percent growth rate for the current year though independent economists are cutting this projection down by between one and 0.8 percent.
The ADB study acknowledged that “remittances have historically served as a useful buffer to withstand Balance of Payment shocks, understanding better how these flows might evolve amid challenging global conditions is critical.”
The focus of the government appears to be on incentives for official inflows and more proactively going after the illegal hawala/hundi system but there must be concern not only about the deportation of illegal Pakistani labour seeking jobs outside the country, many succumbing to poor transit conditions, but there is a brain drain as well as the economy is not able to generate new job opportunities.
It is, therefore, imperative that the government seeks to strengthen the economy through implementing reforms and slashing, in the interim period, its own current expenditure with the objective of gaining leverage with the multilaterals that would enable the policymakers to undertake pro-poor policy measures.
Copyright Business Recorder, 2025
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