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Remittances and its future prospects.

Remittances and Its Future Prospects

From the mid-seventies to the early eighties, no factor affected domestic employment and the balance of payments situation more than the outflow of workers and the inflow of workers remittances from the oil rich countries. Factor services like workers remittances so has become an important sources of foreign exchange earnings - Accordingly Pakistan represents a case of close dependence of immigrants remittances for its economic development that to subjected to the full cycle of its vicissitudes. Latest figures indicate that about 2 million Pakistani workers of different categories were employed in these oil rich countries.

During the Fifth Five Year Plan (1978-83), period as much as one-third of the increase of this fast growing labour force found employment in the oil rich countries. In 1982-83 the official flow of remittances from the oil rich countries was $2.9 billion which was greater than the total merchandise exports at that time ($2.6 billion). Pakistan which has been its oil bill increase from $ 54 million in 1971-72 to $ 1503 million in 1983-84 and to $ 1161 million in 1989-90 found these remittances of immense relief to a constant worsening balance of trade position. On the exports side remittances at one time on an average, contributed 67 per cent of the total merchandise exports. Its contribution to exports was only 14 per cent in 1973-74 but quickly rose to surpass the total export earnings in 1982-83 and 1983-84 declining to $ 1942 million in 1989-90 meaning 38.9% of exports ($ 4992 million).

From the imports side the contribution of remittances could be assessed from the fact that when the import bill was rising as a result of higher oil prices import bill increased at an average rate of 22 per cent and 29.2 per cent during the years 1972-73 to 1982-83 & 1982-83 to 1989-90 remittances came to rescue Pakistan's balance of payments. Accordingly remittances at that time financed on average, approximately one-third of Pakistan's imports. Its contribution in financing imports was as low as 9.5 per cent in 1973-74 but increased to finance more than 50 per cent in 1982-83, however lately in 1989-90 its proportion was only 26.76 per cent ($ 7256 million).

The average proportion of trade balance covered by remittances ranged from 18.6 per cent in 1974-75 to 96.5 per cent in 1982-83. However, due to improvement in trade balance in 1986-87 (exports increased by 18.9 per cent while imports grew by -3.2 per cent), this proportion increased to 99.3 per cent and now in 1989-90 it stood at 85.1 per cent.

Furthermore, the importance of remittances in Pakistan's balance of payment can also be assessed by the fact that it amounted to approximately 15.9 per cent of total trade (imports plus exports). The proportion of remittances to the total trade was only 5.6 per cent in 1973-74 but it gradually increased to 35 per cent in 1982-83. The contribution of remittances to balance of payment could also be assessed from the fact, that it accounts for 90 per cent of private transfer.

Historically remittances have contributed significantly in the current account balance and national income; nevertheless it is beyond the scope of this paper to point out all areas where they have played a role. However, in view of Iraq - Kuwait conflict it is felt that the contribution of remittances would now register a decline in the days to come. It is also said that for non-oil developing countries like Pakistan economic problems would be massive, which may hamper our already underway programmes. Secondly oil prices which have already shot up by more than 100% are sure to aggravate the economic climate which could worsen our trade balance; resulting that we would have to pay more for our future imports. Accordingly it is viewed that as a result of Iraq - Kuwait conflict approximately $ 175 million would be the loss Pakistan has to incur during 1990-91 meaning that the remittances target of $ 1.9 billion set for fiscal 1990-91 is doubtful. Let us see how far it is true:

I somehow do not substantiate to the above idea that the remittances during the fiscal year 1990-91 would face a setback and the target of $ 1.9 billion may not be achieved. The following points would support these views: The Iraq - Kuwait conflict which took place in August started showing its effects in the shape of remittances transfer during August and September 1990. The above two countries no doubt registered a fall but for other major remitting countries it was not so as was evident from the tables.

In August, Dubai, Libya, Saudi Arabia, Sharjah and Oman were the major remittances areas which showed, an upward trend: out of these, Saudi Arabia's performance was extra-ordinary. On the other hand, obviously Kuwait and Iraq performed poorly. For the month of September again it would be observed that the same trend is repeated. It may be mentioned that the extra ordinary performance during the months of August and September were not seasonal; this would be evident if previous years performance during these months is compared. Obviously then the point arises whether or not the performance during these months and possibly few more which would follow could help in countering the adverse affect faced as a result of the Gulf conflict. My answer is may be yes!

As a matter of fact the scare created in the area has led the immigrants to transfer their savings back home through a safer source, which has led to the present trend (Saudi Arabia etc. extra ordinary remittances level). This leads to the fact that the total anticipated loss faced during the year would be covered up by the enhanced level of remittances transfer from Saudi Arabia, UAE etc. - This theory could further be supported by the fact that since the solution of the Gulf crises is not in sight in the visible future the remittances transfer process will continue and would possibly keep the present tempo - All this leads to the fact that the target of $ 1.9 billion set for the year is in no way in any danger! [Tabular Data Omitted]
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Title Annotation:loss of remittances of displaced overseas workers from Kuwait and Iraq
Author:Manzoor, Nayyer
Publication:Economic Review
Date:Nov 1, 1990
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