In a year that will be remembered for a number of unfavourable economic trends, home remittances have emerged as a bright spot to ward off pressures on external sector of the economy and protect its solvency. According to the latest data released by the State Bank on 9th July, overseas Pakistanis remitted a record amount of $11.2 billion during FY11 that ended on June 30, showing a huge jump of about 25.8 percent or $2.3 billion when compared with $8.9 billion received during the preceding year (2009-10).
At this level, remittances are expected to be around 45 percent of the exports for the full year. It was also encouraging that during June 2011, an amount of $1.105 billion was received which was the highest-ever amount remitted in a single month and compared very favourably with $841.44 million received in the same month last year. Besides, it was the fourth consecutive month of the outgoing fiscal year when Pakistani workers had remitted over $1 billion.
Earlier, they had remitted $1.05 billion, $1.03 billion and $1.05 billion during March, April and May, 2011 respectively. Over 58 percent of the remittances were received from the Middle Eastern countries during FY11 and the inflow from Saudi Arabia was the highest at $2.67 billion followed by UAE ($2.60 billion), USA ($2.07 billion), GCC states ($1.31 billion), UK ($1.2 billion) and European Union ($345 million). The increases from these countries/regions ranged between $69 million and $753 million.
A sharp improvement in home remittances during 2010-11, particularly their encouraging trend in the latest months of the year, is indeed a very positive development for the country. The target of workers' remittances was fixed at $9 billion but surpassing both the target and actual receipts of $8.9 billion in the previous year by a big margin must be very satisfying for the policy-makers of the country. Government and the State Bank usually take the credit for the upsurge in remittances by claiming to have introduced "Pakistan Remittance Initiative (PRI)" which is considered to have contributed to the channelisation of a large part of remittances from informal to formal channels.
Although initiatives under the PRI like Xpress Money and Interbank Fund Transfer Facility (IBFT) may have enhanced the confidence of overseas Pakistanis in the banking channels to a certain extent, yet factors like closing of the gap between official and unofficial exchange rates of the rupee and uncertainty and apprehensions in most of the countries where Pakistanis are employed appear to have played a greater role in accelerating the flow of remittances.
Some of the analysts even go to the extent of attributing the increased flow of remittances to the financing of terrorist activities in the country but such accusations are hard to prove. Anyhow, current account of the country is likely to show a remarkable improvement during FY11 due largely to the record inflow of remittances. The available data show that it was already in surplus by $205 million during the first eleven months of 2010-11 in sharp contrast to a massive deficit of $3.4 billion in the corresponding period of the previous year.
Needless to say that such a healthy turnaround in the current account, brought largely by record level of remittances, would be very helpful in maintaining foreign exchange reserves at a comfortable level and stabilising exchange rate of the rupee besides safeguarding the country from exogenous shocks in future. Also, the country will be able to have uninterrupted supply of imports and repay its external debt in time.
However, while welcoming such a healthy development, authorities of the country need to further exploit the opportunity for enhancing remittances to the maximum, particularly at a time when exports are not likely to maintain their rising trend due to a fall in prices of cotton and its products in the international market and sluggish growth in exportable surpluses of many of our exports due to severe energy crisis and several other factors.
In fact, if home remittances fail to provide an anchor to the foreign sector, economic managers of the country may be obliged to renegotiate another programme with the IMF and the conditionalities may be even tougher this time. Also, credit rating of the country may be downgraded with its attendant negative consequences.
Keeping all the factors in view, it is very essential to ensure the continuity in the present trend in home remittances by maintaining a close watch on the unfolding situation, avoiding complacency and taking appropriate measures whenever needed.
Besides, efforts need to be made to enhance the level of exports in the medium to long-term to reduce over-dependence of the country on the increased flow of remittances which, in any case, could only be sustained by a combination of favourable developments originating from other labour-importing countries that would be beyond our control.