Ever since the government takeover by PDM in April last year, the inflow of remittances has suffered quite significantly — having declined by 14.3% year on year and 4.8% month on month in November 2022. For an import-dependent economy, low accumulation of dollars can translate into defaulting on international payments. So far, Pakistan has been keeping its dollar books in a reasonable condition through external borrowing from friendly countries and the hard-to-get funds from the IMF.
One of the main reasons causing a decline in the amount of remittances does not lie in inability of the foreign workforce to earn money and send it back home. It is the discrepancy in the official and market rates of dollar that has forced the migrants to shun the banking route and resort to hundi/hawala to remit money. Even though Pakistan has been receiving a good amount of remittances, it never made a good use of the facility.
Every year millions of people leave their home country to work in distant lands. Most of them leave their homes and families for no other reason but to meet their financial needs that had become impossible to cover in their country of origin. Usually, to control expenses the migrant workers live alone for years in foreign lands. They spend minimum resources so that more and more money can be sent back. The money the migrants send home not only helps their families but their country too. According to a UN assessment, wisely spent remittances can become an essential source of achieving some of the critical Sustainable Development Goals (SDGs) at private levels — such as reducing poverty, attaining health and nutrition, receiving good education, accessing improved housing and sanitation, finding entrepreneurship opportunities, reducing inequality, building assets and increasing savings to deal with the uncertainty in lives.
Studies have shown that remittances reduced poverty across Latin American and Sub-Saharan African countries and elsewhere, such as Nepal, the Philippines and Bangladesh. According to research carried out in 2005, a 10% increase in remittances per capita resulted in a 3.5% decrease in poverty in more than 70 developing countries. However, the benefit of remittances to the recipient country also depends on factors such as political and social conditions, income distribution mechanism, level of local development and policy environment that facilitate a productive use of remittances. “Around 258 million people live outside their country of origin, and the money these workers send to their relatives supports another 800 million people worldwide. Typically, migrants send between US$200 and US$300 several times a year. Although these may seem like small amounts, they often consist of 50 per cent or more of their family’s annual income.”
Given its importance, the UN started celebrating in 2015 the International Day of Family Remittances to recognise the contribution migrants make in improving the wellbeing of their families. It also helps raise awareness about the importance of spending remittances in the right direction. The day is meant to celebrate the hardwork, sacrifice and generosity of all those migrants who sacrifice their comfort and relationship to provide invaluable resources to their loved-ones. Celebrations on 16 June every year also sets a reminder for policymakers to facilitate transfer of remittances by creating legally convenient payment methods.
Several methods of transferring money have been used over the decades. However, after Covid-19, digital transfer of remittances has taken precedence over sending remittances online — a service provided by Money Transfer Operators, banks or mobile operators. Digital remittances can be defined as a process of sending money to one’s home country, using Internet. Digital remittances have grown in parallel with mobile and online banking technology. Countries make special laws and arrangement to ensure that no money exchanges hand using illegal method of transfer, which is not only unsafe but also deprives the government of the recipient’s country of receiving valuable foreign exchange. Trust in one’s government and its credibility in exercising financial prudence goes a long way in enabling the migrant workers to adopt legal banking channels for transfer of remittances.
Another area of SDG that remittances enable a country to achieve is Financial Literacy. The Organisation for Economic Co-operation and Development (OECD) has defined Financial Literacy as “not only the knowledge and understanding of financial concepts and risks but also the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life”.
Pakistan has also introduced a number of programmes in this regard, such as the Sohni Dharti Remittance Program. According to the official website of the State Bank of Pakistan, this programme is executed through a smartphone application available in English and Urdu languages. One of the app’s important features is its tracking system. It assists the remitter to track the data of their every remittance. Based on this information, the remitter receives redeemable reward points from free-of-cost services provided at multiple Public Service Entities.
Pakistan with a large and sympathetic diaspora can increase the flow of cash remittances.
In its report, Pakistan’s Implementation of the 2030 Agenda for Sustainable Development, the government has resolved to “improve prioritized indicators under SDG 17. These include remittances, a major contributor to the economy. The target is to increase remittances to 10 per cent of GDP from the current 7 per cent by improving the quality of human resources and decreasing the costs of sending remittances from abroad back to Pakistan”.
Pakistan has been falling back on international and domestic policies because of political instability. No government is given the space and time to complete its tenure or focus on developing the nation. Those apparently holding the reins of power support corrupt politicians and detest a system that could create an environment of development and growth.
Published in The Express Tribune, January 14th, 2023.
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