Role of remittances: The News

By Dr Ashfaque H Khan
Remittances constitute one of the largest and more resilient sources of foreign exchange earnings for developing countries including Pakistan. The flow of workers' remittances to developing countries has grown steadily over the past three decades – rising from $18 billion in 1980 to $328 billion in 2008; approximately an 18-fold increase. Within developing countries, South Asia accounted for 23 per cent, that is, $74 billion. India alone accounted for 70 per cent ($52 billion) remittances in South Asia followed by Bangladesh (12 per cent or $9 billion) and Pakistan (9.5 per cent or $7 billion). These three countries together accounted for almost 92 per cent or a remittance inflow of $68 billion in South Asia in 2008.

Workers' remittances in Pakistan continued to exhibit a rising trend over the last one decade (1999/00-2008/09). These have grown eight fold in 10 years – rising from $984 million to $7.8 billion. United States, UAE, other GCC countries and Saudi Arabia accounted for over 79 per cent of total inflow of remittances.

The surge in remittances flows in Pakistan during 2008-09 has surprised many analysts. In the midst of the global economic meltdown and rise in unemployment, remittances grew by over 21 per cent in 2008-09. This surge in inflow was not only limited to Pakistan but South Asia as a whole registered an increase of 33 per cent. Why did remittances surge in South Asia in general and Pakistan in particular during the outgoing fiscal year? There are several views in this respect. Firstly, migrants may have lost their jobs in host countries and have returned with their savings; hence, the jump in remittances flows. Secondly, Saudi Arabia, UAE and other GCC countries are major destinations for the Pakistani migrants. It appears that these countries have not sent Pakistani workers back home in large numbers. Thirdly, falling property prices, rising interest rate differentials and a sharp depreciation of exchange rate may have played important roles in attracting large remittance inflows for investment purposes as opposed to consumption purposes.

Why are remittances important for developing countries like Pakistan? The developmental impact of remittances is widespread as it affects various sectors of the economy and helps improve living standards; these are non-debt creating inflows and help in developing the financial sector in recipient countries.

In particular, remittances improve households' welfare by lifting recipient families out of poverty and insulating them against income shocks. These flows serve as a means to increase recipient families' income, ease credit and liquidity constraints and allow them to improve their consumption and living standards. The increase in recipient families' consumption leads to an increase in the demand for goods and services which encourages entrepreneurs to invest more. This leads to an expansion of markets, increase in output, higher economic growth, and rise in employment opportunities. Higher consumption expenditure and greater demand for goods and services may increase tax revenue through consumption-based taxes. These additional resources can be used by the government by allocating more resources for strengthening the country's physical infrastructure and for alleviating poverty. Remittances also improve a country's debt sustainability level. Empirical evidence suggests that the recipient country of remittances can sustain higher levels of future debt. Empirical evidence also suggests that remittances have a positive and significant impact on investment and economic growth.

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Pakistan launches new remittances order: Gulf Times

The State Bank of Pakistan has announced ‘Payment and Settlement’ systems of home remittances under Pakistan Remittances Initiative (PRI), the central bank said in a note yesterday. The SBP note carries objectives of establishing the automatic delivery of home remittances in the beneficiary’s account and over the counter system in real time; and generating confirmation by text message to the remitter and the beneficiary.

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Pakistan's July remittances at record $747.22 mln: Forbes

KARACHI, Aug 12 (Reuters) - Pakistan received a record $747.22 million in remittances from citizens overseas in July, compared with $627.21 million in the same month last year, the State Bank of Pakistan said late on Tuesday.

The previous monthly record was $739.43 million, received in March.

The largest inflow of remittances during July came from the United Arab Emirates, with $159.32 million, followed by Saudi Arabia with $150.13 million.

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WB sees remittances falling to developing nations: The News

WASHINGTON: The global recession is curbing income flows to developing countries from workers living abroad this year, with Latin America and sub-Saharan Africa hardest hit, the World Bank said Monday.

The World Bank projected remittance flows to developing countries would decline by 7.3 percent in 2009, to 304 billion dollars.

In 2008 remittance flows surged by 15 percent to 328 billion dollars.

Remittances slowed considerably in the fourth quarter last year, the development lender said in a report, after the global financial crisis accelerated following the collapse of Wall Street investment bank Lehman Brothers in September.

"Remittances are relatively resilient because, while new migration flows have declined, the number of migrants living overseas has been relatively unaffected by the crisis," it said.

The meltdown in the US real estate sector, the epicenter of the global crisis, was expected to reduce by 6.9 percent remittances for the Latin America and Caribbean region.

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Illegal flow of remittances continuing, says Tarin : Dawn

ISLAMABAD: Pakistan’s federal budget for 2009-10 will be presented in the first half of June, the country’s economic manager said, although he has not been able to decide on a final date.

Advisor to the prime minister on Finance Shaukat Tarin has said here on Tuesday that the federal budget for 2009-10 will be presented either on June 6 or June 13.

‘Preparations for the budget have almost been completed but the final budget announcement date would be decided soon,’ he said talking to media at the launch of World Bank’s report on ‘Bringing finance to Pakistan’s poor’

The federal budget 2009-10 would be the first budget for Mr Tarin in capacity as the finance manager of the country.

Shaukat Tarin said that illegal channels still contribute to the major inflow of remittances into the country.

He acknowledged that the contents of the WB report that informal supply occurs through the organized hundi / hawala sector and through committees, shopkeepers, moneylenders and transfers through friends and family.

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BD remittances higher than Pakistan’s: The News

By Mansoor Ahmad

LAHORE: Worker remittances, which account for 4.2 per cent of the gross domestic product, are increasing, but are still low when compared with Bangladesh having less qualified low-wage workers around the world.

In Pakistan, remittances have increased almost seven-fold from $1.075 billion at the start of the century in 2000 to $7.025 billion in 2008 and are rising even when global recession is impacting remittances in some countries. According to recent data, Bangladeshis working outside their country sent home over $9 billion, 20 per cent higher than Pakistan.

Despite the increase in remittances, the money received through legal banking channels, the unofficial ‘hundi’ business is thriving in Pakistan. Operators of that illegal business have changed the way they conduct it. In some cases, they receive money from the expatriates in the host country and give them a code number. Their sub-office in Pakistan makes payment to the recipient on disclosure of the code number. As an additional safeguard, a copy of the identity card of the recipient is also obtained before making the payment.

Some of the operators are more cautious. They phone the recipient and inform him that they would deliver the money at home and ask him to keep a photo copy of his identity card. They never visit the recipient house at the scheduled time and date and go later and deliver the money.

The authorities, however, have adopted a lax attitude towards hundi operators. The business is on the rise as expatriate workers seem to have more confidence in hundi operators than the official channels which also charge less.

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Trickle Down Economics: Remittances: Economist

Migrants are less fickle sources of cash than foreign creditors

QUEUES of migrant workers waiting to send money to their families hardly present globalisation at its most glamorous. But such remittances made up more than a fifth of the GDP of some countries such as Jamaica, Jordan, Lebanon, Moldova and Tajikistan in 2007.

Data compiled by researchers at the World Bank suggest that remittances may have another virtue that is less widely appreciated. Although they are likely to fall as a result of the slumping world economy, they may be less fickle than more publicised private-capital flows, such as equity and lending by foreign banks.

Private-capital flows have plunged in the past year, and are continuing to fall. The Institute of International Finance (IIF), a global banking body, reckons that net private-capital inflows into emerging economies fell from $929 billion in 2007 to $466 billion in 2008, a drop of nearly 50%. And 2009 will see only $165 billion flow to emerging economies, according to the IIF.

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