Home Global Village Can an increase in remittances boost Pakistan’s economy?

Can an increase in remittances boost Pakistan’s economy?

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Waqas Shabbir |

Inflows of workers’ remittances sent by overseas Pakistanis have witnessed a much-needed surge. It has increased to $14.6 billion from $14.058 billion, exhibiting a 3.5% year-on-year growth, in the first nine months (July to March) of the current fiscal year.

Last year, the workers’ remittances stood at $14.058 in the first nine months compared to the $14.388 billion in FY 2016, which was the decline of 2.3% from FY2016.  It reflects that this year, remittances have shown a better performance than the last two years.

According to the data released by the State Bank of Pakistan (SBP) in March, remittances reached a seven month high at $1.77 billion as compared to $1.69 billion received in March 2017, which is equivalent to a growth of 4.6%. The figure is also marginally ahead of the $1.711 billion witnessed in 2016.

Improvement in exports and remittances is a healthy sign, but besides this, if debt keeps on rising and if Pakistan is unable to increase its exports by enough magnitude to counter the rise of the import bill, then there will be a large liability in terms of dollars.

In Pakistan, traditionally, a major chunk of overseas workers remittance comes from KSA, US, UAE, UK and other GCC countries. KSA remains the biggest contributor towards the remittances, but, recent immigration curbs and the ongoing austerity measures have changed the situation in the KSA. This could disrupt the flow of remittances if Saudi economy fails to transform as prescribed under vision 2030. Employment in US has reached a pre-crises level and EU countries are slowly reverting back to normalcy, which could help in keeping the remittances flow steady.

The increase in exports of 24% in March along with remittances is indeed a positive development for Pakistan’s struggling economy.

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Remittances can be crucial but Pakistan will have to improve its dollar-earning capacity. This surge in remittances is mainly attributed to the depreciation in rupee. People are not sure about the future course of the rupee, as the Government term is nearing an end. Though, there is a speculation that by June there will be a third round of depreciation. Nothing is clear; people want to take advantage of the current situation which might have led to this hike in remittances. 

Moreover, according to the new amnesty scheme, if the remittances exceed $100,000 per year, they will be subjected to tax. Overseas Pakistani’s are aware of this fact which could have also encouraged them to send money home before the start of the scheme. 

Though, the figures demonstrate a healthy sign for Pakistan’s economy derided by the ever-increasing twin-deficit and ballooning public debt.  But, Pakistan remains in an acrimonious situation due to the stagnant tax revenue which has been historically hovering around 10% of the GDP, eroding foreign reserves.

Inflows of workers’ remittances sent by overseas Pakistanis have witnessed a much-needed surge to $14.6 billion from $14.058 billion, exhibiting a 3.5% year-on-year growth, in the first nine months (July to March) of the current fiscal year.

Improvement in exports and remittances is a healthy sign, but besides this, if debt keeps on rising and if Pakistan is unable to increase its exports by enough magnitude to counter the rise of the import bill, then there will be a large liability in terms of dollars.

Pakistan mainly relies on loans from China, and other institutional lenders, to bridge the gap between the balance of payments and current account deficit and fiscal deficit, but unless it doesn’t improve its exports and if it does not utilize the borrowed money on asset building, it will continue its dependence on external factors to assist the economy.

Read more: Voting rights for Pakistanis living abroad to be guaranteed: CJP

The geopolitical or economic condition in countries responsible for a major chunk of remittances can change unfavorably, which can affect Pakistan drastically. Recently, when the oil prices dipped in KSA, the number of Pakistani who left KSA increased, and the number going in the opposite direction also declined. With the passage of time, Pakistan will have to improve its competitiveness, formulate effective export and industrial policy which may discourage debt accumulation [which is expected to reach $100 billion, if rupee is allowed to further depreciate to 124-25 in June] 

If there is no tax policy or incentives, [since we don’t know, how the latest amnesty scheme will perform] and if the government fails to devise a strategy to develop industries along with an effective export policy, the economy will have to rely on remittances. Hence the conditions depict a bleak future for Pakistan’s economy.

Waqas Shabbir is a Derby Business School graduate in Finance, currently working as a freelance writer. The views expressed are those of the author and do not necessarily reflect GVS editorial policy.


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