Growing reliance on remittances.
Ever since coming into power, the PTI government is straining hard to steer the country out of current account and fiscal deficits. Among other sources of financial aid from the friendly states, PTI government also looks forward to the diaspora i.e. the 8 million overseas Pakistanis who send home remittances of around US$ 20 billion every year. PTI government's initiative taken so far to attract higher remittances from overseas Pakistanis have started to give positive results as inflows have remained on an uptrend from several parts of the world. According to the figures released by the State Bank of Pakistan (SBP) Remittances from overseas Pakistani workers increased by 12 percent amounting to $12.77 billion in first seven months i-e July-January of the current fiscal year compared to $11.38 billion in the same period of previous year. The Country-wise figures of SBP also indicates the improvement in remittances.
The remittances have remained a biggest source of foreign reserves, which help narrow down the current account deficit. Pakistanis living in western countries, including USA and UK, have remained the bests in remittance inflows in January 2019 and first seven months of the current fiscal year. At the same time, the remittances from Middle Eastern countries, mainly Saudi Arabia and the UAE, showed to some extent improvement in January after remaining under pressure for the last two years. The central bank has indicated that remittance inflows from the Gulf Cooperation Council (GCC), particularly Saudi Arabia, have grown. It is possible that layoffs in the region have gone down in recent months, which may have led to the bottoming out of remittances from the GCC. It remains to be seen if this trend reversal will continue going forward. SBP indicated that remittance inflows have been under stress for the past couple of years (since the first quarter of FY17) due to low oil prices and the Gulf economies' adoption of nationalization policies and fiscal consolidation measures.
It is too early to assess that it is purely result of government initiatives. It may be consequence of other measure such as the government had let the rupee depreciate around 32 percent against the US dollar in the inter-bank market. The measure was primarily taken to increase exports and cut imports in order to reduce the current account deficit. However, it also helped attract higher worker remittances. Inflow of remittances may further improve if government take strict measures to discourage the transfer of remittances through illegal channel like Hundi and Hawala.
The government has recently introduced the M-Wallet scheme to build capacity for receiving remittances instantly. Under the scheme, banks in partnership with telcos have introduced new, or tag the existing, M-wallets for home remittances. Users of these M-wallets will be able to receive home remittances in their accounts and use them when needed to withdraw cash or transfer funds, make purchases or pay bills. Every US dollar equivalent of money received in these accounts will also be provided with an airtime of two rupees equivalent in their mobile phones. The easy account opening, cash from any ATM or Branchless Banking (BB) agent, easy transfer of funds and payment of utility bills are the salient features of this scheme. A lot of efforts are required to make adapted it among overseas Pakistanis to attain targets.
Similarly government launched another scheme 'Pakistan Banao Certificate' to generate $ 3 billion, in fact is diaspora bond. Diaspora bond is issued by a country to its non-residents overseas citizens with the purpose to raise inexpensive money to support the mother country in bad times. Since 1951, many countries has experienced. The launch of the bonds itself is a good idea and emerge beneficial for both government as well as overseas Pakistanis but need to acquaint among overseas Pakistanis otherwise expected generating is not guaranteed. The incentives announced recently have yet to make a fully favorable impact. It is expected these incentives will attract higher remittances inflow. Estimated remittances are around $21.2 billion in fiscal year 2018-19 with these steps. Hopefully government may further increase such incentives in order to increase flow of remittances, which will help it to efficiently manage external economic pressures. Since most of the overseas Pakistanis are supporters of the PTI government and Prime Minister Imran Khan therefore lot of expectations are anticipated from these incentives. The diplomatic efforts and awareness campaign may help the success of these schemes.
The governments in Pakistan always expect from overseas Pakistanis to rescue it whenever it is in financial trouble. Relying too much on remittances without offering incentives and privileges to overseas Pakistanis can be a mistake. Like the PPP and the PML-N, the PTI government is also doling out billions of rupees to exporters in different kinds of subsidies. But no big incentives are available to nine million-plus Pakistanis abroad who send billions of dollars back home every year. However it is valued that PTI government introducing measures to enhance remittances.
It is reality that in past for generating more remittances we incentivize banks and not the remitters. Incentivizing banks is logical. It helps curb inflows of remittances through unofficial channels. But offering no incentives to remitters does not make sense. Unlike Bangladesh, we have no scheme in place to promote exclusive investment from our expatriate citizens in special economic zones or special industrial schemes on easier terms. Still need to take more actions to develop a mechanism which provide free and easily accessible remittance services to workers through banks/ registered money transferring companies, reduce cost involve to remit, and make more attractive to maintain their foreign currencies saving accounts in Pakistan.
The writer is ex-Chief, Planning Commission of Pakistan.