Remittances Keep Pakistan Economy Afloat
Remittances from overseas Pakistanis rose 32 per cent year-over-year to $3.1 billion for the first four months of fiscal 2009/10, according to the State Bank of Pakistan. The central bank expects over $8.5 billion this year in remittances in documented remittances from about 7 million Pakistanis abroad, equivalent to about 5 per cent of Pakistan's gross domestic product. “It is important. That is the size of our current account gap,” State Bank of Pakistan Governor Salim Raza told the News. Pakistan is among the top ten destination countries receiving foreign remittances. Some estimates indicate the formal remittances account for less than half of the actual amount sent to Pakistan.
Finance Minister Shaukat Tarin has said that increasing remittances from Pakistani diaspora is the best way to "get rid of dependence" on international lenders. "International financial institutions lend us with strings attached. We can say goodbye to them."
The government has launched Pakistan Remittance Initiative (PRI) to bring about a fundamental change in the remittance regime and double the volume of transfers in five years. The effort is aimed at encouraging remitters to use the country’s banking channel by streamlining this process to overshadow the illegal hawala system commonly preferred for being cheap and speedy. Now five banks will transfer wired amounts in the account of the receiver within 24 hours.
In March this year, Dr. Farooq Sattar, Federal Minister for Overseas Pakistanis talked about an ambitious target of $15 billion in remittances in 2009-10 while speaking to the media at the launch of a Western Union book titled "Marhaba Musafir". The book contains the basic information about the various countries where Western Union's has operations.
The remittance dollars pouring in to the nation's economy offer the much needed lifeline to the poor in the midst of multiple and serious crises confronting the people of Pakistan. Not only do these remittances dwarf the foreign loans and aid received by Pakistan, the money remitted is far more effective in helping the national economy in the following important ways:
1. Unlike foreign aid, the remittance money from overseas Pakistanis comes with no strings attached. These dollars do not serve the geopolitical interests of any foreign power. Nor are the funds used to pay for unnecessary imports or to pay expensive foreign consultants and contractors from donor countries.
2. While foreign assistance dollars are funneled through the government, the bulk of the remittance money goes directly to the people and it does not feed graft which siphons money into foreign bank accounts of corrupt politicians and bureaucrats.
3. The remittance money has a significant stimulus effect on Pakistan's economy. It invigorates the local economy because it is spent by the people to buy mostly domestic products and services that create more jobs which support more local consumption, and create even more employment opportunities.
In the United States for example, most of the food aid, including the additional $770m food aid last year, for the poor countries requires the aid recipients to purchase food from the US agribusiness. These funds do not help the farmers in the poor nations grow food for the countries to become less dependent on foreign help. The US farm lobby continues to flex its muscle and enrich itself, without regard for the severity of the hunger crisis in the poor nations resulting from sharp increase in food prices. Three years ago, farmers and their allies in Congress effectively destroyed an effort by the Bush administration to begin the switch to untied food aid. The current composition of US Congress is no different, as far as the overwhelming power of the farm lobby is concerned.
European governments switched to giving all-cash donations for food in the mid-1990s, arguing that cash allows more flexibility in responding to crises and that the U.S. uses its food aid as a form of farm subsidy. But the Europeans also continue to erect various barriers to food imports from poor nations that could improve the viability of agriculture in many Asian and African countries.
Private donations abroad by Americans, including pledges to charities and churches and disbursements from corporate foundations, now are three times as large as America's official development assistance of $20 billion, and there is every indication this trend will continue. Washington's contribution looks even more miserly when the ODA data are broken down. Here are some basic facts about US foreign assistance:
1. Less than half of aid from the United States goes to the poorest countries.
2. The largest recipients are strategic allies such as Egypt, Israel, Russia, Pakistan, Afghanistan and Iraq.
3. Israel is the richest country to receive the highest per capita U.S. assistance ($77 per Israeli compared to $3 per person in poor countries).
4. Even after the tripling of the US aid to $1.5 billion a year to Pakistan under Kerry-Lugar bill, it still amounts to about $8 per Pakistani.
According to Asia Times, last year only five of the 22 countries considered industrialized - Norway, Denmark, the Netherlands, Luxembourg and Sweden - achieved the donor benchmark of allocating 0.7% of GNP to ODA. The benchmark was adopted at the Earth Summit in Rio de Janeiro in 1992 under the UN Agenda 21 program for eradicating poverty through development assistance. No other countries have even come close to meeting the target.
France managed 0.41% of GNP last year, the United Kingdom 0.34%, Germany 0.28%, Canada 0.26%, Spain 0.25% and Australia 0.25%. Japan, the only Asian participant, came in a lowly 19th with a paltry 0.2%, maintaining a reduced ODA commitment that dates back to 2001.
Dambisa Moyo, a former economist at Goldman Sachs, and the author of "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.", recently argued in a Wall Street Journal OpEd that "money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial."
She goes on to say, "Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.
Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster."
Last year, remittances to various other Asian countries were as follows: $8.9 billion for Bangladesh, $27 billion for China, $30 billion for India, $6.5 billion for Indonesia, $2.2 billion for Nepal, $1.8 billion for Malaysia, $16.4 billion for the Philippines, $2.7 billion for Sri Lanka, $5.5 billion for Vietnam and $1.8 billion for Thailand, according to International Labor Organization estimates.
While recognizing that there is no one silver bullet to alleviate poverty, microfinancing, along with social entrepreneurship, is becoming an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people toward self-reliance by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. Supported by private foundations working in Pakistan, all efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.
The foreign remittances from overseas Pakistanis and private efforts are clearly helpful to the poor in the short to medium term. However, it is extremely important to recognize that the remittances alone are not sufficient for long-term economic progress based on the much needed human development that translates into a highly productive work force contributing to a vibrant national economy. It is absolutely necessary for the Pakistani state to make significant public investments in education, healthcare, infrastructure development and pursuit of good policies and competent governance in the country.
Related Links:
NRO Corruption and Democracy in South Asia
Opposition to Kerry-Lugar in Pakistan
Aid, Trade, Remittances and Microfinance
Zardari Corruption Probe
Rampant Corruption in Construction Industry
Pakistan Remittance Profile
Human Development Slipping in South Asia
Governance in Pakistan
The State, Religion and Ethnic Politics: Afghanistan, Iran and Pakistan
Finance Minister Shaukat Tarin has said that increasing remittances from Pakistani diaspora is the best way to "get rid of dependence" on international lenders. "International financial institutions lend us with strings attached. We can say goodbye to them."
The government has launched Pakistan Remittance Initiative (PRI) to bring about a fundamental change in the remittance regime and double the volume of transfers in five years. The effort is aimed at encouraging remitters to use the country’s banking channel by streamlining this process to overshadow the illegal hawala system commonly preferred for being cheap and speedy. Now five banks will transfer wired amounts in the account of the receiver within 24 hours.
In March this year, Dr. Farooq Sattar, Federal Minister for Overseas Pakistanis talked about an ambitious target of $15 billion in remittances in 2009-10 while speaking to the media at the launch of a Western Union book titled "Marhaba Musafir". The book contains the basic information about the various countries where Western Union's has operations.
The remittance dollars pouring in to the nation's economy offer the much needed lifeline to the poor in the midst of multiple and serious crises confronting the people of Pakistan. Not only do these remittances dwarf the foreign loans and aid received by Pakistan, the money remitted is far more effective in helping the national economy in the following important ways:
1. Unlike foreign aid, the remittance money from overseas Pakistanis comes with no strings attached. These dollars do not serve the geopolitical interests of any foreign power. Nor are the funds used to pay for unnecessary imports or to pay expensive foreign consultants and contractors from donor countries.
2. While foreign assistance dollars are funneled through the government, the bulk of the remittance money goes directly to the people and it does not feed graft which siphons money into foreign bank accounts of corrupt politicians and bureaucrats.
3. The remittance money has a significant stimulus effect on Pakistan's economy. It invigorates the local economy because it is spent by the people to buy mostly domestic products and services that create more jobs which support more local consumption, and create even more employment opportunities.
In the United States for example, most of the food aid, including the additional $770m food aid last year, for the poor countries requires the aid recipients to purchase food from the US agribusiness. These funds do not help the farmers in the poor nations grow food for the countries to become less dependent on foreign help. The US farm lobby continues to flex its muscle and enrich itself, without regard for the severity of the hunger crisis in the poor nations resulting from sharp increase in food prices. Three years ago, farmers and their allies in Congress effectively destroyed an effort by the Bush administration to begin the switch to untied food aid. The current composition of US Congress is no different, as far as the overwhelming power of the farm lobby is concerned.
European governments switched to giving all-cash donations for food in the mid-1990s, arguing that cash allows more flexibility in responding to crises and that the U.S. uses its food aid as a form of farm subsidy. But the Europeans also continue to erect various barriers to food imports from poor nations that could improve the viability of agriculture in many Asian and African countries.
Private donations abroad by Americans, including pledges to charities and churches and disbursements from corporate foundations, now are three times as large as America's official development assistance of $20 billion, and there is every indication this trend will continue. Washington's contribution looks even more miserly when the ODA data are broken down. Here are some basic facts about US foreign assistance:
1. Less than half of aid from the United States goes to the poorest countries.
2. The largest recipients are strategic allies such as Egypt, Israel, Russia, Pakistan, Afghanistan and Iraq.
3. Israel is the richest country to receive the highest per capita U.S. assistance ($77 per Israeli compared to $3 per person in poor countries).
4. Even after the tripling of the US aid to $1.5 billion a year to Pakistan under Kerry-Lugar bill, it still amounts to about $8 per Pakistani.
According to Asia Times, last year only five of the 22 countries considered industrialized - Norway, Denmark, the Netherlands, Luxembourg and Sweden - achieved the donor benchmark of allocating 0.7% of GNP to ODA. The benchmark was adopted at the Earth Summit in Rio de Janeiro in 1992 under the UN Agenda 21 program for eradicating poverty through development assistance. No other countries have even come close to meeting the target.
France managed 0.41% of GNP last year, the United Kingdom 0.34%, Germany 0.28%, Canada 0.26%, Spain 0.25% and Australia 0.25%. Japan, the only Asian participant, came in a lowly 19th with a paltry 0.2%, maintaining a reduced ODA commitment that dates back to 2001.
Dambisa Moyo, a former economist at Goldman Sachs, and the author of "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.", recently argued in a Wall Street Journal OpEd that "money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial."
She goes on to say, "Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.
Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster."
Last year, remittances to various other Asian countries were as follows: $8.9 billion for Bangladesh, $27 billion for China, $30 billion for India, $6.5 billion for Indonesia, $2.2 billion for Nepal, $1.8 billion for Malaysia, $16.4 billion for the Philippines, $2.7 billion for Sri Lanka, $5.5 billion for Vietnam and $1.8 billion for Thailand, according to International Labor Organization estimates.
While recognizing that there is no one silver bullet to alleviate poverty, microfinancing, along with social entrepreneurship, is becoming an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people toward self-reliance by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. Supported by private foundations working in Pakistan, all efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.
The foreign remittances from overseas Pakistanis and private efforts are clearly helpful to the poor in the short to medium term. However, it is extremely important to recognize that the remittances alone are not sufficient for long-term economic progress based on the much needed human development that translates into a highly productive work force contributing to a vibrant national economy. It is absolutely necessary for the Pakistani state to make significant public investments in education, healthcare, infrastructure development and pursuit of good policies and competent governance in the country.
Related Links:
NRO Corruption and Democracy in South Asia
Opposition to Kerry-Lugar in Pakistan
Aid, Trade, Remittances and Microfinance
Zardari Corruption Probe
Rampant Corruption in Construction Industry
Pakistan Remittance Profile
Human Development Slipping in South Asia
Governance in Pakistan
The State, Religion and Ethnic Politics: Afghanistan, Iran and Pakistan
Comments
With an impressive 17.7% annual growth, remittances sent home by overseas Pakistanis surged to a record high and crossed the psychological mark of $13 billion in the previous fiscal year 2011-12, the State Bank of Pakistan (SBP) announced on Tuesday.
Continuous growth in remittances is being billed as a lifeline for Pakistan’s economy, especially when energy shortages and high inflation have hurt gross domestic product (GDP) growth.
“Remittances have been playing a key role in the country’s economic performance,” said Muzammil Aslam, Managing Director of Emerging Economics Consultancy.
“One can safely say that the continuous rise in remittances in the last few years has saved Pakistan from serious economic problems including default on debt repayments.”
Aslam suggested that the government can further increase the flow of remittances if it reduces the difference between interbank and open market exchange rates for the US dollar from the present one rupee to 10 to 15 paisa. “This will encourage overseas workers to send more and more dollars through banking channels instead of illegal means.”
Invest Capital Markets analyst Khurram Schehzad commented that the continuous rise in remittances is significantly positive for the country as the money supported the economy in different forms. Overseas Pakistani workers remitted a record amount of $13.186 billion in the last fiscal year ended June 30, 2012, compared with $11.201 billion received a year earlier, the SBP said.
Except for September ($890.42 million) and November ($924.92 million), Pakistanis remitted more than $1 billion in each of the remaining 10 months.
Monthly average of remittances rose 17.73% to $1.099 billion compared with $933.41 million a year earlier.
In June overseas Pakistanis sent home $1.117 billion compared to $1.104 billion received in the same month of 2010-11.
In the same month, remittances from Saudi Arabia, UAE, USA, UK, GCC countries and EU countries amounted to $333.68 million, $219.14 million, $206.60 million, $128.12 million, $126.72 million and $29.24 million respectively. In comparison, remittances from these countries were $291.55 million, $270.04 million, $204.64 million, $121.35 million, $106.20 million and $33.83 million respectively in June 2011.
Analysts believe that the SBP’s initiative for facilitation of remittances, called the Pakistan Remittance Initiative (PRI), has significantly contributed to the growth of remittances.
Since its inception in April 2009, PRI has taken a number of steps to enhance the flow of remittances through legal channels. These include preparation of strategies on remittances, taking all necessary steps to implement the overall strategy, playing an advisory role for the financial sector in terms of preparing a business case, relationship building with overseas correspondents, creating separate and efficient remittance payment highways and becoming a national focal point for overseas Pakistanis through a round-the-clock call centre.
http://tribune.com.pk/story/406343/remittances-surge-to-record-high/
Developing countries are expected to receive $406 billion in remittances in 2012, which is 6.5% higher than the remittances they received in 2011, according to a recent World Bank report.
The World Bank projects that remittances to developing countries will grow by 7.9%, 10.1% and 10.7% in 2013, 2014 and 2015 respectively, to reach $534 billion in 2015.
While the international economic downturn has adversely affected remittance flows to Europe and some other regions, South Asia is expected to fare much better than previously estimated, the report says. Remittance flows to South Asia are expected to clock in at around $109 billion in 2012, up by 12.5% over 2011, it said.
According to the State Bank of Pakistan (SBP), the country received remittances of $13.2 billion in fiscal 2012, which were 17.7% higher than the preceding fiscal year.
Similarly, in the first four months of the current fiscal year, remittances to Pakistan stood at $4.9 billion, higher by 15% compared to remittances received in the corresponding four-month period last fiscal year.
“Regions and countries with large numbers of migrants in oil-exporting countries continue to see robust growth in inward remittance flows, compared with those whose migrant workers are largely concentrated in the advanced economies, especially Western Europe,” the World Bank report says.
According to the Bureau of Emigration’s Assistant Director Farrukh Jamal, more than 80% of the manpower that Pakistan has exported resides in Saudi Arabia. “Almost 90% of recent emigrants from Pakistan currently work in the Middle East,” he told The Express Tribune in an interview two weeks ago.
The largest single-country chunk of remittances that Pakistan received in fiscal 2012 – amounting to $1.1 billion – was from Saudi Arabia. It was followed closely by the United Arab Emirates (UAE), with $963.1 million remitted from the country in the same period. The United States ($795.3 million) was the third biggest source of remittances during fiscal 2012...
http://tribune.com.pk/story/471300/expatriate-workers-increasingly-help-float-domestic-economy/
https://www.fairobserver.com/podcasts/the-quick-take-on-how-remittances-affect-economies/#
While they provide crucial income for families and boost the national balance of payments, remittances can be a double-edged sword. They can lead to currency overvaluation, making a country’s exports less competitive on the global market. They can reduce labor participation in the domestic sector, causing workers to opt for more lucrative jobs abroad.
Pakistan relies on remittances to manage external debt and finance deficits. This dependency makes the country vulnerable to external economic shocks. If the flow of remittances were to decrease due to a global economic downturn or changes in immigration policies in host countries, Pakistan could face severe financial challenges.
Remittances are also associated with higher consumption and imports. This trend could lead to a situation where the economy relies more heavily on remittances to maintain consumption levels, potentially limiting investment in productive sectors that drive long-term growth and job creation.
Learning from Israel’s example
Nasir Khilji, a retired senior US Treasury economist, emphasizes the importance of managing these inflows effectively. Nations that receive large amounts of remittances must avoid relying on cash inflows by undertaking structural reforms and investments to diversify the economy and increase labor productivity.
In recent decades, Israel has had similar experiences with remittances. The country directed remittance funds toward infrastructure and technology development. This skillful management helped Israel avoid the trap of dependence. It allowed the Israeli economy to grow, leading to positive economic outcomes.
Countries like Pakistan could follow suit by creating incentives for investment in productive sectors and developing financial products targeted at expatriates. Moreover, they need to implement structural reforms to ensure that the economy does not become overly dependent on remittances. This includes diversifying the economy, improving the business environment, and investing in human capital to increase labor productivity and participation.
As developing economies progress, effectively harnessing these financial resources can be a powerful tool to drive long-term growth and maximize the benefits of the incoming cash while mitigating its potential downsides.