Dawn News - Monday June 10, 2013 Remittances’ support to balance of payments THE continued rise in workers’ remittances provides significant balance of payments support, at a time when the external sector is in dire straits. These remittances are sent primarily by oversees Pakistanis to support their families back home. Not much of this inflow is invested, except in house building. But some of these inflows go into portfolio investment. Remittance inflows have continued to increase over the years, and they constitute over 50 per cent of the country’s export earnings. They outweigh the combined total of multilateral support assistance, official development assistance and foreign direct investment. Having doubled during the last five years, they are now taking care of the trade deficit. Remittances increased from $6.4 billion in 2007-08 to $12 billion in the July-April 2012-13 period. If the present rate of hike persists, these could meet the year’s target of $14 billion. Remittances are likely to go up as migrants remit additional amounts in Ramazan and ahead of Eid to their families. Overseas Pakistanis also appear to trust the good intentions of the new government to revive the economy, and may respond favourably in this situation. And the PML-N, which came into power after the May 11 elections, plans to take steps to improve the level of remittances and direct part of it to productive investment. The party stated in its manifesto that it wanted to channel ‘at least 50 per cent of annual remittances into productive investment’. It also said that it would ask banks and development finance institutions to offer ‘special products and financial instruments to provide secure and profitable avenues of investment to oversees Pakistanis’. The PML-N also proposed setting up a ‘special consultative mechanism called the Oversees Pakistanis Business and Professional Forum to give a voice to oversees Pakistanis, and enhance their role in the nation-building process’. According to the World Bank, migrants sent $401 billion to their families in developing countries in 2012, where remittances are expected to grow by an annual average of 8.8 per cent for the next three years and are forecast to reach $515 billion in 2015. Their flows to developing countries have more than quadrupled since 2000. Global remittances, including those to high-income countries, are estimated to have reached $514 billion in 2012, compared to $132 billion in 2000. Top recipients of officially recorded remittances for 2012 were India ($69 billion), China ($60 billion), the Philippines ($24 billion), Mexico ($23 billion) and Nigeria and Egypt ($21 billion each). Other large recipients included Pakistan, Bangladesh, Vietnam, and Lebanon. Remittance inflows do lend a helping hand to the economy, as is evident from China’s example, where they played a crucial role in its economic development and contributed a significant chunk to foreign direct investment. Former finance minister Shaukat Tarin was so impressed by the benign role of remittances that once he suggested that the best way to ‘get rid of dependence’ on foreign lenders was to raise the volume of remittances. However, Saudi Arabia’s decision to impose a tax on the earnings of non-Saudi workers may impact the overall flow of remittances to Pakistan. One estimate puts the hit at $370 million, although there may be no immediate impact, at least not in 2013. However, an impact may be experienced the next year. Saudi Arabia has become the largest market for Pakistani workers. There are more than 1.5 million Pakistanis working in the kingdom, and the number keeps on increasing. Around 80 per cent of them earn less than 2,500 riyals per month, and, under the new tax regime, will have to bear more than a 10 per cent cut in their earnings, which will subsequently reduce the amount they send to their families back home. So far, remittances have been mainly used for consumption purposes. Policy initiatives are needed that can help channelise these inflows into productive investment and entrepreneurship promotion. Potential investors should be informed about investment avenues and encouraged as well as facilitated to undertake productive projects, free of bureaucratic hassles. Overseas workers need to be helped, first of all, in finding ways to remit money at a lower transaction cost. The concerned ministry needs to develop an incentive-based package that accommodates the needs of not only the high-income group of overseas compatriots, but also those of low-income workers, for investment in the country. An appropriate policy can persuade expatriates to invest in lucrative projects and investment schemes. Similarly, the potential of the National Savings Scheme (NSS) can also be more effectively harnessed. According to State Bank of Pakistan figures, it is for the first time that investment in NSS has exceeded the total amount required for its debt servicing in the first nine months of the current fiscal year. It was also higher than the amount realised in the entire 2011-12 period. The total investment was worth Rs310 billion in the July-March 2012-13 period, while debt servicing amounted to Rs204 billion in the period, leaving a positive cash flow of Rs106 billion. The National Savings Organisation (NSO) has recorded an impressive growth of its instruments during the last five years, and its overall portfolio has already crossed Rs2,400 billion, from Rs1,080 billion in 2007-08. The NSO can float dollar-denominated saving instruments to raise money from abroad, particularly where clusters of Pakistani expatriates are located. Meanwhile, more and more Pakistanis are investing in the state-run national savings instruments, despite a decline in profit rates. The middle class views these as the safest investment. The savers do not find the returns on their bank deposits much attractive either.
Posted on: Mon, 10 Jun 2013 09:26:46 +0000
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