November 28, 2018 (MLN): Remittances play a crucial role in Pakistan’s economy and have become a considerable source of external flows, providing inflows of dollars to boost foreign reserves, as they make up for almost half the import bill and cover the deficit in the trade of goods account.
During the 4MFY19, most of the Pakistan’s trade deficit was covered by Worker’s remittances.
Moreover, in Pakistan, remittances have caught more importance in the face of huge amount of debt servicing.
Officially recorded workers’ remittances received by Pakistan during FY18 exceeded to USD 19.6 billion from USD 19.3 billion in FY17, remained short of the peak inflows of USD 19.9 billion in FY16. Meanwhile, during the 4MFY19 it stood at USD 7.4 billion. The marginal increase in FY18 shows that the downward trend in inflows in FY17, has apparently reversed.
Pakistan receives most of its remittances from the Gulf countries, but, within the region, Saudi Arabia and the UAE stand out.
According to SBP statistics, Saudi Arabia was the leading source of remittance for Pakistan with $4.8 billion being remitted in FY18.
Other leading countries were the UAE ($4.3 billion), the UK ($2.76 billion), the US ($2.7 billion) and Kuwait ($0.7 billion).
The decline in remittances from Saudi Arabia in FY17 and FY18 was attributed to the economic reform like job nationalization drive to replace foreign worker with Saudi citizens and movement in oil prices. Furthermore, Saudi Arabia along with UAE has introduced value added tax imposed on wholesale, retail sale which increased the cost of living for unskilled lower income workers.
Increase in share of the non-GCC countries in the Pakistan’s remittances inflow is a good sign, as higher diversification lowers the risk of sudden drop in these inflows.
However, the two policy initiatives taken in last FY18 of Asaan Account and the promotion of home remittances through M-Wallets also helped to boost remittances.
The increase in remittances has been observed after PTI government took a charge. As during the 4MFY19, it increased to 15.14% as compared to the same period last year. The rise in remittances is being seen in context of Imran Khan’s appeal to overseas Pakistanis to donate for dams.
The current government is taking many positive steps to increase remittances inflows by directing concerned ministries/ departments to work out further incentives for Pakistanis abroad so as to attract remittances through legal channels.
Pakistan should adopt specific policies to ease the transfer of foreign exchange by residents as long as they can prove that the local currency amount has been legally earned.
Government should also work on foster higher and inclusive growth through attracting remittances by encouraging overseas workers in various types of government-sponsored bonds and in the stock market can supplement domestic savings for investment, including in badly needed infrastructure projects.
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