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The conundrum of foreign Remittances in Pakistan

Examining the structure of foreign remittances, the vast majority of cash sent by overseas Pakistanis is by the poor labor class. These Pakistanis are the workforce in the lowest segment of these oil-rich nations working as drivers, house workers, construction workers, and workers in the retail markets.

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Time and again, leader after leader from almost every political party boasts about overseas Pakistanis sending remittances. This political sloganeering is primarily adopted by currently the most popular leader of Pakistan, Imran Khan.

As this mantra is repeated so often, one wonders whether our political class actually understands what foreign remittances mean, writes a faculty at Brown University.

First, let’s examine where these foreign remittances are coming from and who is sending this cash.

Read more: The puzzling decrease in remittances

In 2022, Pakistan received almost $31 billion as foreign remittances

The most significant remittances come from Saudi Arabia, UAE, the United Kingdom, and the United States followed by the European Union.

It is pertinent to examine that while the overseas remittances stood at a record $31 billion in 2022, the foreign direct investments in Pakistan in August 2022 were merely $110 million.

While in the first quarter of 2022, China received $101 billion, the United States $67 billion, and Australia $59 billion as foreign direct investment.

While Pakistan received only $110 million as foreign direct investment, India received $58.8 billion, which is 534 times higher than Pakistan as foreign direct investments. At the same time, India received $87 billion as foreign remittances.

However, India is almost seven times the size of Pakistan’s population, receiving only three times more remittances, equating to nearly 50% fewer remittances than Pakistan.

Examining the structure of foreign remittances, the vast majority of cash sent by overseas Pakistanis is by the poor labor class. These Pakistanis are the workforce in the lowest segment of these oil-rich nations working as drivers, house workers, construction workers, and workers in the retail markets.

Read more: Remittances rose to a record $31.2 billion in FY22: SBP

They are not being upskilled and doing hard physical labor.

Similarly, western countries’ inflows result as overseas Pakistanis send a smaller portion of their savings back home.

What Pakistani political leaders fail to understand is that foreign remittances mean that your labor workforce or skilled minds cannot get jobs in the local economy and are moving overseas.

This brain drain deprives Pakistani society of a much-needed workforce and intelligent minds. So in real terms, these foreign remittances mean a pretty low dividend on the brains you are exporting and are counter-productive to the country and the economy on a longer time scale.

There is nothing to be proud of regarding high foreign remittances coming from overseas Pakistanis. On the contrary, sending your much-needed brains overseas is shameful as you can not consume them in the local economy.

The way forward

The Pakistani leaders should be proud of or work hard on increasing foreign direct investments. This is a much better test of a country’s economic performance. But, unfortunately, FDI (foreign direct investments) make up only 0.68% of Pakistan’s GDP, which is among the lowest in the heavily populated countries in the World as of 2020.

Another fact that Pakistan’s political leaders must understand is that the sophistication of an economy depends on its GDP per capita. Pakistan ranks 144 out of 194 countries, lower than India, Bangladesh, Sri Lanka, Nigeria, and Ghana. Pakistan is in the same bracket as Cambodia, Congo, and Sudan.

Read more: Record remittances received in Roshan Digital Account

Therefore, Pakistani political leaders must propagate a vision based on economic realities rather than pointless rhetoric. They must measure their performance against foreign direct investments in the country compared to how many loans they have secured or how much remittances were received in their tenure. Similarly, they must focus on the sophistication and upskilling of the economy.

Otherwise, the night is pretty young, and we have a long way to go.

 

 

The author is a graduate of the University of Oxford’s Said Business School and currently works as Faculty at Brown University in the United States. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.