KARACHI: The contribution of overseas workers has been a large and stable source of foreign exchange even during recessionary periods in the economy.
The economy today is undoubtedly passing through its most challenging period in Pakistan’s history, when numerous internal and external provocations, including energy crises, inflation, food insecurity, lawlessness and accumulated debt crises, are injecting instability and creating a trust deficit. But one thing which remains constant is the contribution of seven million overseas workers in the form of remittances.
During the last several years, overseas Pakistanis contributed $55 billion to Pakistan whereas the International Monetary Fund (IMF) has only given $6 billion in financial assistance to the country. It has been projected officially that the overseas worker may contribute $14 billion by the end of this year against $13 billion in remittances from the preceding year. It is also crucial to know that much of the remittances come through illegal channels which are not widely productive for the economy.
There is colossal potential to improve remittances and direct them to be used on a larger scale for developmental purposes.
In order to meet its working capital obligations, the government should start loan schemes to borrow money from overseas workers, even at a markup rate at which it is borrowing from other lending institutions such as the IMF. By using this option, the government can free itself from the harsh conditions attached with IMF loans, and overseas Pakistanis will be able to invest their savings in their own country at a higher markup rate than what they are getting from abroad.
Studies to calculate the flow of remittances for the economy proved that a larger part of the amount received is consumed by the construction industry, as the overseas worker builds houses, shops and other buildings in the home country. The construction industry is linked to 35 other industries, including cement, iron, glass, wood and paint. When the overseas workers allocate much of their earnings to housing construction, each of these industries grow as a result.
The government can motivate overseas Pakistanis to invest their savings in sectors like manufacturing by giving incentives such as provisions of land. In this way, the government can achieve multidimensional economic goals like job creation, increase in productivity and tax revenue etc.
In order to improve the contribution of overseas Pakistanis to the economy, the government should make it a priority to tackle the obstacles expats face. It has been observed almost 80% of remittances come from the Gulf States, where workers are living in deplorable conditions. In this regard the ministry of overseas Pakistanis can play a major role.
Similarly Pakistani workers in Europe and the United States are also facing a lot of discrimination. Most of the people working in these states are unskilled and exploited as cheap labour. In this regard, the government should tackle their concerns on the diplomatic front. One option that can be feasible is to establish technical institutes abroad.
In the past governments had started many such schemes to enhance the role of overseas in the national economy but all these schemes have failed due to corruption and inefficiency which leads to a trust deficit in overseas workers when it comes to their government. The government should bridge the trust deficit by ensuring transparency and accountability for overseas matters.
The writer hosts business talk shows on FM 101 and Radio Pakistan and is pursuing an M Phil in Economics
Published in The Express Tribune, September 23rd, 2013.
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I agree with author. I don't think he said do not build institutes in Pakistan, he said provide training to those abroad. . In fact, I am a great advocate of this idea. There are millions of Pakistanis already abroad. If Pakistan High Commissions in major countries start small institutes that provide training to Pakistanis who are already abroad, their remittances will double within couple of months.
The writer should give one bag of flour to his supervisor, certainly he will get the PhD atonce.
@optimist: I have heard the same point in dual nationality cases. In my opinion the Pakistanis of North America and Europe, mostly live with their families unlike their brothers of middle east. They have to spend most of their earnings in West and some portion of savings are sent to relatives and charities. Pakistanis who work in middle east send all or major portion of their income to Pakistan due to insecure jobs and status. The remittances sent from middle east are purely for family use, which causes inflation whereas the remittances sent from Western countries (most of) are for investments and charities. There is one more point, The Pakistanis who live in west, always spend huge amounts during their visit to Pakistan compared to Middle Eastern Pakistanis. These amounts never show up in statistics.
This is another eye opener article for officials in Pakistan to treat overseas Pakistanis respectfully, give them incentives, priority on airports, custom rebates, free passports etc.
Although there is a scheme for remitters to get custom rebate and free passport by having a remittance card issued by OPF, but there are only handful who are aware of this.
Half of this borrowed money is either pocketed or spent on the so called WAR on TERROR!!
My comments are on couple of subjects: 1. Transferring Money: I have been sending money from UBL fro the past 10 years, and they are extremly good in transferring amount to my Parents account and also if there is no account, they can send it via DD. And that too in 24 hours. Which is a great service, thumbs up. 2. What is Govt is doing to help us? Nothing, we do not even get priority at Immigration lines, No schemes for us in Pakistan, all of them are corrupt and not feasible. Govt. should provide pension scheme, prefrenttial rates on Land, and investment opportunities for Pakistanis abroad. Shaukat Aziz did a good job in selling Defence certificate outside Pakistan, for us, but after that no scheme came for us. 3. When ever someone comes for Job from Paksitan, he should get a free account in a Pakistani Bank at home and he should get instruction to send the money through the banking channel. This way we seed the right instruction in the root and he will most likely to followit. 4. Crack down on 'Hundy' service, this needs to be on war footings, once users do not get an option to send money then they will come back to Banks or Exchange houses. 5. I must appreciate the efforts from PPP govt, as they have introduced more channels(free of cost) for us to send money in past 5 years.
I can't claim to have even the slightest idea how money trafficking is practiced? Was just wondering how can huge sums be siphoned off to offshore accounts, if the banks are not a part of it? Do the banks run separate or a parallel ledgers? If not then how can they know how much has been spirited off to foreign shores?
This shows that the biggest economy (USA) and Europe contribute less than half of what Pakistanis in Saudi Arabia send.
To encourage overseas Pakistanis to send money through legal channel Government of Pakistan needs to streamline process of send money to Pakistan.
For example, I send money through National Bank of Pakistan in New York to my relatives in Pakistan. Though National Bank has tried to made an half hearted attempt to streamline the process to send money using internet but still it is a very crude system. First, one needs to set up an internet account which is nothing but hassle. They need one verification after the other and then they loose it ask it to submit again.
Second, the rate they give is by far the lowest one can image. And lastly the time it takes for money to reach one's relatives is just pathetic.
One need to bear in mind that most of the money sent to Pakistan from the US is from New York. Majority of those do small jobs and don't want to go through hassle of sending money through banks like National Bank when they can simply walk into hawala place, get better rate, and money can be picked up or delivered very next days, including holidays. So those who keep harping to send money through legal channel tell me one more time, Why?
$14 billion in International Remittances this year through official documented channels. An estimated same amount through illegal channels like Hundi/Hawala. An excellent opportunity for the Government to try and get more overseas Pakistanis to send their remittances officially.
The only reason why people choose to use risky, insecure and often expensive informal channels, even till today, is because the recipient in Pakistan is often unbanked or has no access to formal channels to collect funds (Remember: only 11,000 bank branches in Pakistan).
While the SBP initiative for Branchless Banking is growing by leaps and bounds, but unfortunately, even Branchless Banking caps transactions at Rs. 25,000 per day on accounts - an amount that can hardly accommodate the average International Remittance. For more than Rs. 25,000 per day, the dependency on branch banking channels creeps in.
The PRI was an excellent initiative by the last Government where a rebate was offered to Financial Institutions if sending and receiving of International remittances was at no charge. But even PRI seems to have gone to sleep. Delays, lengthy processes, red tape and overall no goals or KPIs to increase remittances into Pakistan.
While loan schemes are a good idea, I'm skeptical on how many Pakistanis would still have the 'trust' to commit their savings to their risky home country for higher returns.
An easier way to go about it is to ensure that recipients in Pakistan are able to collect International Remittances easily and to educate and encourage overseas Pakistan to send funds through legal channels. The SBP has a very important role to play if the current value of USD 14 billion in remittances is to climb to USD 20 billion or more in the next 2-3 years.
The author wrote down following 'Build technical institute abroad' What is he smoking? Which one is more effective? By building in Pakistan and training people and then exporting trained people to foreign countries. OR Building institute outside the country?