Remittance services

Pakistan’s slowing remittances have been a major cause of concern over the last two years. Low oil prices crippling the construction industry in the Gulf economies combined with the low value of the British pound have led to a shrinking rate of remittances received in 2016-17. The biggest concern, however, has been the use of informal money transfer methods, such as hawala and hundi. The Ministry of Finance and the State Bank of Pakistan have been in discussions over how to meet these challenges and have finally come up with a solution. They have agreed to launch a new scheme worth billions of rupees to team up with international banks in select locations to boost remittances through official banking channels. The government is set to bear the cost for commercial banks to deliver money to the relatives of overseas Pakistanis across the country. With no specific deal agreed to yet, this is very much a proposition on paper for now and will need a lot of legwork to actually be implemented. But even the work on coming up with a policy on this is an indication of the sheer size of the fiscal deficit that has been accumulating – so much so that the government is ready to spend from its own pocket to increase official remittances.

The trouble is that the Pakistan government can do little to repair the global economic damage that has been done by external events. The hope was that Pakistan could secure the rights of Pakistani overseas workers to receive the salaries that they are not being paid in Saudi Arabia and other Gulf States but the government has done precious little to help them. Amidst falling exports, it seems remittances have been the only bright light for our economic managers. That is the fundamental problem: Pakistan’s overreliance on migrant labour remitting money to the country. Without remittances, the current account deficit would almost be double and the foreign exchange reserves would be nil. The consequences would obviously be dire, with Pakistan possibly having to return to the begging bowl – a strategy that has rarely turned out well for its long-term economic stability.

In such a situation, it is the eight million Pakistanis who are working abroad that our economic managers usually turn to in order to steady the ship. Moreover, sending local labour abroad is being given credence as an economic strategy – one that conveniently eases the need for the government to create jobs at home and provide requisite services at home. The question we must come back to is whether the billions spent on these new remittance services will be worth the cost. The government has estimated an increase in about $3 billion in annual remittances, but we must remember that people do not send back money based on incentives. After 9/11 and the tightening of the financial regulatory environment, a major pull factor was created, but this has now been steadied. This is a risky investment which could potentially paper over the crack but does not offer a long-term fix for our economic instability.