Remittances to Pakistan

Introduction:

If I have a foreign income or I earn money in a foreign country, bring that money to my country directly or indirectly and get benefit of that money in my country is called remittance. There are many other definitions I found regarding remittances. For example, I go to Spain to work with a firm or a company and my only income there is the income given to me by that firm. I earn money from the firm and send that earning to my family members via bank or through any person who come to Pakistan, the money will be used in Pakistan by my family which is named as remittance.

International capital flow and aids from international gifts are also type of remittances. Remittances are not just for the sake of flow or transfer of money from one country to another country, it also helps in human development through the education and health. People from different corner of the world get interacted and the sharing, exchange and discussion of ideas is more than just monetary gains.

The policy makers and the think tanks can maximize the remittances by formulating such policies which appreciate and encourage the remittances and decrease the cost related to remittances between countries. If there exists a policy to easily transfer the remittances to the country of origin, like fast technology and less barriers in transferring money to home country will boost the remittances.

There is a high need of balance in the regulatory authority to minimize money laundering, terrorist financing and other loopholes in the sending of money from one country to other, the money which is being send via illegal and illicit channels should be stopped.In the context of above paragraph, remitters opt for the ways which are cheaper, easy and exempted from taxes which is not in favor of the country.

Remittances have risen in the few decades in developing countries in particular. On the other hand the policies and ways to minimize illicit trade and transfer of money doesn’t decreased, which is a point to ponder for the policy makers and economists. Remittances can improve the living standards of people who send to their countries and helps in overall improvement of economic growth of the particular country. So the imposition of law is in favor of the whole country.

Pros and cons:

When the remittances are being transferred through proper channels of financial institutions or saved in these institutions, than these funds from the remittances will positively affect the economy. Contrarily, if these funds from remittances are traded illicitly, it will not contribute to the economy and will be treated as black money.

Remittances have its negative aspects as well. Some people think that remittances may create inequality and brain drain. And defend their argument by saying that remittances create inequality because it’s the rich people who migrate and send back remittances hence become richer.  On the other hand, if the funds from the remittances are used for the schooling, health, social benefits, social developments, construction purposes on and on, than these funds will positively affect the overall growth. Second maindebate is of brain drain. Many people think that the people who are more skilled and technical are being preferred by the developed countries which are a loss to home country.

The remittances major benefit is the benefit to households. Remittances can help in stabilizing the income of households, positively affect their savings and also increase their investments. Thus the living standards and well-being are enhanced due to remittances. Furthermore, the families who bring more remittances are seen to buy more durable goods and live their good lives. They prefer air conditioners, refrigerators;they have access to good health facilities and school systems etc.

According to world banks survey, the flow of remittances to developing countries is growing fast and among these developing countries Pakistan has a large share in the overall remittances of developing countries. Flow of remittances to developing countries increased in 2011 by 0.8% and it is expected to increase more by 6 to 7 percent. Pakistan was the 8^th largest remittance sender according to world banks data of 2015.

Pakistan’s perspective:

The major countries from which Pakistan collect its remittances are: Saudi Arabia, united Arab emirates, United States of America, GCC countries, UK-including other European countries. More interesting point about the remittances is its intensity remained a bit slower in 2015 due to decrease in our currency against dollar and due to fluctuations in the oil prices.

Now the main topic the remittances of pakistan will be discussed with the help of facts and figures, some statistics and graphs from 1990 to date.

In october 2015, according to world bank, pakistan became 8^th largest country regarding remittances and the share of foreign workers remittances in the GDP of pakistan for the year 2014 was 6.9% which is not a small figure. Further more, world bank has predicted or forecasted that the remittances to the pakistan will increase: the flow of remittances in 2015 will be approximately $20100 in millions. This increase in remittances to pakistan is a result of pakistan remittance initiative (PRI) which was launched in 2009, this policy gave a platform and encouraged the foreign remittances of pakistan sharply.

Now this amount has sum up to approximately 19B$ in fiscal year 2015 this money was sent from saudi arabi which was $540M and from USA which was $260M, and other countries which include UAE, UK and other GCC countries can’t be ignored because they also send a lot of remittances to pakistan.

The remittances from saudi arabia amounted to 463 million, remittances from united arab emirates amounted to 313 million, remittances from united states of america are 180 million, sum of remittances from United kingdom amounted to 172 million, remittances from Bahrain which is a GCC country sum up to 190 million.

Remittances are the impotant factor of pakistan after FDI. The maximum inflow of remittances to pakistan from saudi arabia has many reasons. The most prominet among them is religious affiliation. People from pakistan mainly prefer to work in a muslim country which provide them all their religious rights and allow them to pratice their religious activities smoothly without any barrier in their religious rituals: fasting, hajj etc.

Secondly, if we consider past decade, the remittance from saudi arabia is a gift. Pakistani expatriates who are in majority blue-collar are sending money back to pakistan, by working with firms in saudi arabia with their hands, not with technology by sitting in offices.

Third reason, people from pakistan migrate to saudi arabia considering it a holy land every year. According to some statistics, about 1.5 million pakistani people, who are mostly labour and low workers work in saudi arabia.

Fourth reason is saudi arabia is not only a source to pakistan, it is worldwide famous for its natural resources. Due to these resources, hundreds of jobs are created in saudi arabia annually which attract workers all over the world, pakistan in particular which is a developing country.

In short, saudi arabis’s job market is so beautiful and salary providing that it attract workers. An average salary of a worker in saudi arabia is SR1808 which is equal to $482.

Why remittances play a key role in the development of developing countries?

Remittances are important for developing countries because it affect many sectors of economy like it affects financial sector, it affects the living standards of recipient families and it affects the health, schooling of the recipient families.

The important affect of remittances is on households, as it improve the welfare of poor families and bring them out of poverty and make them safe from income shocks which come abruptly and affect the poor people.

The high income from the remittances tend to increase the demands for goods and services in the home country and due to high demand, recipient of remittances increase their consumption and investment. Hence the overall GDP of the country increases. Due to this increase in consumption, the local markets are being expanded and higher economic growth occurs and high oppurtunities of employment are created which is a positive indication for a country.

On the other hand, more demand for consumption for goods and services increases tax revenue, hence more tax is collected which makes gov’t more strong and the fund collected from the taxes can be used for the welfare and infrastructure development of the country.

Despite the economic downturn, the remittances have been increased. The reasons for this increasing trend are

1.      The worker’s migration to high income countries from pakistan increases

2.      Higher skilled workers or high skilled labour from pakistan are migrating toward SA, UAE, USA, UK and GCC. These high skilled labour increase the overall remittances to pakistan.

3.      Third major reason of more remittances to pakistan is the return on investment in the home country. There are lot of oppertunities for investors in pakistan, which attract the recipient of remittances to bring/ send back their money and use their money in their home country through investing in agriculture or manufacturing industries.

Remittances to pakistan showed a very steepness which was less than $2 billion in 1997 which almost reached $20 billion in 2015. To be straight, the remittances to pakistan by the workers out side pakistan has quadrupled in the las decades which is very encouraging for pakistan. Among this figure, the premium contribution was of the 1.5 million workers residing in Saudi Arabia who send back their earned money to pakistan which is being used in the consumption in the home country, investment in the pakistan, even saved in the banks of pakistan for long or short period of time which give investment opportunity to other who benefit from the banks throug loans and t-bills and other projects.

Till 1988, there was less differenciation between skilled workers and unskilled workers. But after the advancement in the world economies, the firms and companies demanded high skill labours and workers. Hence the supply of high skill workers from pakistan increased after 1988 and now, skilled labours are more prefered over less skilled labours.

Due to political law and order, unemployment and insecurity, pakistani people are, either skilled or unskilled are applying to live abroad: mainly in Saudi Arabia, UAE, UK and USA. It is estimated that more than 4 million pakistani workers are living in UAE, Saudi Arabia and GCC countries and according to other sources more than 7 million pakistani workers in form of migrants are living in UK, USA, Canada and above mentioned countries which is a very big proportion of pakistani population living abroad.

In collaboration with ministry of finance, state bank of pakistan (SBP) has established pakistan remittance initiative (PRI) which was a good step to regulate the remittances policies. The premiun role of PRI was to optimize the volume of remittances and decrease the remittances cost as much as possible. PRI encouraged the large number of remittances to transact via banks or through wire from the other countries. Pakistani expatriates can inquiry to the PRI regarding their problems.

I have quoted four main suggestions of PRI from an article:

1.      The financial incentives should be provided to the returning immigrant that wishes to set up small or medium size businesses.

2.      To make banks more proactive and to improve the quality of remittance disbursement to the beneficiaries in Pakistan (i.e. by minimizing the remittances turnaround time at the banks). Rapid and instant processing and payment collection by the beneficiaries shall reassure immigrants to direct their payments through official channels.

3.      The Banks should offer saving products/services/accounts to the Pakistani expatriates to send their remittances via banking channel.

4.      The Banks should quote special exchange rate to the remitting agencies/remitters to send their money via banking channel.

Keeping in focus all these suggestions, pakistan remittance initiative put its efforts to run the remittances of remitters very smoothly and fairly. This is actually an incentive scheme which plays a key role in boosting the remittances and making the transaction less costly and make the system more transparent so that the remittances will be beneficial to both remitters and can help in the development of the country and boost the over all economy as well.

In 2001, due to 9/11 attacks on the world trade centres in new york city of USA, the remittances to pakitan decreases and the remittances amounted to 1460 $ in 2001 and very abruptly in 2002 the remittances jumped to 3550 $ in 2002. It shows that the terrorism can very badly affect the remittances to pakistan, the main reason was that the perpatrators in the 9/11 attacks were the members of Al-Qaeda that’s why as a muslim majority country pakistan got suffered.

After 9/11, US authorities strengthen the check and balance of pakistani expatriates, freezed their accounts and give less employment to the muslims- from pakistan in particular.

More important than above, the pakistani remittances decreased as a result of  nuclear tests in 1998 due to embargos and sanctions by international communities. There was a decline in the total remittances from 1.5 billion dollars in 1998 to 1.06 billion dollars in 1999 till 2000 and 2001.