EDITORIAL: A 19.3 percent year-on-year drop in remittances in July isn’t exactly how the outgoing government would’ve liked to kick off the new financial year, especially since it also marked the end of its tenure.
Now the euphoria from the SBA (Stand-By Arrangement) will evaporate more quickly because sentiment will turn from driving up the market to bracing for deteriorating fundamentals. For better or worse, foreign workers’ remittances make up one of the most important parts of this country’s current account. And this pipeline suddenly starting to dry like this ought to sound loud alarm bells in the finance ministry.
Different sides are offering different reasons, as always, from the post-Eid usual dip to earnings slowing down abroad. But since there’s little the country itself can do about how other economies are doing, which impacts how much people earn and send back home, it must focus on whether exchange rate problems are still discouraging people from using formal banking channels and causing this drop.
July’s remittances of $2.03 billion were 7.3 percent lower than June’s $2.2 billion. The latter was the only monthly rise since $2.5 billion in March, so there’s a clear month-on-month downtrend as well. It’s not at all clear, though, what the finance ministry can do about it.
It is technically rudderless right now and the debate about the powers that the caretaker setup would be able to exercise has been dragged into the spotlight like never before. Whether or not it’ll work with a sovereign central bank to ensure transparency and stability in the exchange rate, and also in cross-border transfers, will tell much.
Yet remittances make only one, though very crucial, part of the current account. And the country is suffering from a reserves crisis. A much ignored part, especially here, is also foreign investment. In many countries, even close friends of Pakistan’s, it takes the lead. So it would be a good idea to work on improving both remittances and foreign investment at the same time. Both largely require the same kind of framework, after all, which is making it easier and safer for outside money to come to Pakistan.
Economic theory also tells us that such reforms are self-feeding because stability, especially stability of returns, encourages more inflows.
Regrettably, such issues have not found their way to the top of any recent administration’s priority list. For too long now governments have been forced to look for urgent loans to stay solvent. The desperation is understandable, given that we have now begun to flirt with sovereign default itself. But they are still guilty of not getting the ball rolling on reforms.
Present crises only make the long term more important, and nothing will get better unless we at least try to earn more than we spend every year.
The decline in remittances is a warning that the government cannot afford to ignore. Pakistan is about to enter very uncertain phase with the IMF (International Monetary Fund) programme in play and a caretaker government in office. The recent past has shown, repeatedly in fact, that this arrangement can breakdown without warning and stay frozen for long periods of time.
The need to keep reserves beefed up, as much as possible, on our own has never been greater. For now, though, there’s not much more to do than wait and watch as the next month’s figure comes and the interim government takes shape.
Copyright Business Recorder, 2023