Had the remittances continued on the double digit annual growth path, the surge in current account deficit could have been less severe in the last two years. In FY16, remittances fully covered the goods trade deficit and it fell short by massive $11.4 billion in FY18 which partially explains the $13.1 billion surge in FY18’s CAD from FY16 levels.
The PMLN government failed to continue on the momentum picked up under Shaukat Tarin’s Pakistan Remittances Initiative. The PRI more than doubled the remittances inflow in PPP term (FY08-13); but the momentum was lost in FY16 - the remittances grew at a CAGR of 17 percent between FY08-13 while it’s slowed down to 7 percent in PML-N time (FY13-18)
One may argue that there was no juice left to be extracted; hence the remittances growth died down. That is partially true; but Dar and his team lacked innovation to tap other diaspora avenues. And even within the PRI, banking acumen was lacking which had enabled his predecessors to route money sent back home through banking channels.
There is not much potential left to lift inward remittances sent back home for consumption as not only the majority of money is now coming through banking channels but also the incremental workers going abroad in Middle East are falling significantly.
The workers registered abroad averaged at 845K in 2014-16 which declined to 496K in 2017 and in 2018 to date the number is a mere 185K. Mind you, these are gross numbers while there is no record maintained for workers coming back to the country. The global employment opportunities for migrants are falling and there is no way the number can reach back its peak anytime soon.
Thus, there is not much room for boosting consumption based inward money. The prime avenue left for PTI is to capitalize on Diaspora savings to channelize in the country. There have been talks about Diaspora bond in the past many years, but they remained talks.
A range of migrant sending countries including India, Israel, Sri Lanka, and Ethiopia have successfully developed financial instruments to tap into the wealth of their respective diaspora, primarily through the issuance of Diaspora bonds - India on three separate occasions fetched over $35 billion in Diaspora bonds since 1991.
Pakistan needs to follow suit. It’s amongst the 100-days agenda spelled out by PTI before election to tap diaspora savings to bring much needed foreign exchange. One needs to be cognizant of the fact that these bonds could be one-time and may help in fetching foreign capital in short to medium term but, unlike remittances, not a long term sustainable solution.
Anyhow, given the US lobbying against probable IMF bailout package to Pakistan due to growing Chinese debt, tapping Pakistani’s wealth abroad is one of the very few options with no strings attached. However, there is a need to circumvent the two sets of constraints including; Diaspora’s lack of trust in institutions within Pakistan, and the country’s persistent regulatory challenges.
Here the PTI comes in play. The best bet Imran has to leverage his personal goodwill to build the trust. A survey (see figure), conducted by the ADB, amongst the Pakistani Diaspora in the US found that a significant numbers of respondents (83 per cent) feel that, given the right conditions, their own Pakistan-related giving could increase significantly.
The annual combined wages of Pakistani Diaspora are estimated, in 2015, to be around US$52 billion equating to around 20 percent of Pakistan’s then GDP. This is such a huge potential that cannot be ignored.
The good news is that FY19 starts at a high note -the monthly remittances inflows jumped by 25 percent (YoY) and 21 percent (MoM) to stand at $1.9 billion in July18. The euphoria cannot be attributed to the election results as the elections took place in the last week of July. It could be seasonal adjustment as flows remain up and down around Eid and similar trend was observed in the previous year too.
Any impact of Naya Pakistan on inward remittances would be visible from August; the anecdotes suggest that there is some surge in money sent home and the weekly reserves position also suggests that current account deficit is falling in August.
Only time would tell that how much of this is attributed to hike in remittances.