Dawn News

Pakistan’s remittances

The writer is a former economic adviser to government, and currently heads a macroeconomic  consultancy based in Islamabad. The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Worker remittances to Pakistan have increased sharply since the launch of the Pakistan Remittance Initiative (PRI) in 2009.

Thirty-three years after the first remittances began to trickle in from the Gulf, their volume had reached $6 billion.

In the six years since then-finance minister Shaukat Tarin launched the PRI with the State Bank of Pakistan and other stakeholders, worker remittances have increased by 150pc — and are expected to comfortably cross $15bn this year, adding a precious extra $9bn to the country’s foreign exchange reserves.

Read: Overseas Pakistanis remit $13.3bn in nine months

The importance of PRI in anchoring Pakistan’s balance of payments during this period can be gauged by the fact that inflows from remittances now fully cover the country’s petroleum imports.

By comparison, the country’s exports recorded a lower increase, rising from $18bn to $25bn, for an increase of $7bn. Without the upsurge in remittances during this period, Pakistan’s balance of payments would have been in dire straits.

Given that this policy initiative has been so crucial in stabilising the country’s external account, it is surprising that even informed observers appear to know little of its working and how this lifeline initiative has changed the face of remittances — or who initiated it.

It is surprising that even informed observers appear to know little of the PRI’s working.

Like in many other areas, Pakistan had taken no policy measures since the 1970s to provide a single framework to streamline worker remittances.

This was in sharp contrast to other large remittance-receiving countries such as the Philippines, which had established national agencies to act as a single point for coordinating policy on remittances.

In early 2009, the finance minister set up a task force jointly with the State Bank of Pakistan and the major remittance-routing banks to study ways to systematically increase the flow of worker remittances into the country through formal channels.

Among the first tasks undertaken was to commission and conduct research on Pakistan’s remittances, including the total volume of inflows from both the formal as well as informal channels (such as hawala/hundi).

For the first time, a dedicated agency, housed in the State Bank of Pakistan, was set up to monitor and handle all banking-related aspects of remittances. In addition, a system of financial incentives was introduced for banks and other agents to encourage them to increase the volume of remittances.

Finally, perhaps the most critical component of the entire initiative was put in place: a real-time settlement system between the commercial banks that allowed for a near-instant transfer of funds received by one bank in Karachi to a branch of any other bank in any part of the country.

This neutralised one of the main advantages of using hawala/hundi: speed of transfer. Thus, if a Pakistani worker in the UAE sent a remittance through, say, UBL, he could now be assured that the funds could be accessed by his family in Muzaffarabad or Karak via any of the major banks close by within two to three days.

While it is difficult to say what the impact on the overall volume of worker remittances has been, given that a large volume of remittances were being routed through informal channels and the PRI diverted these to the banking system; nonetheless, the impact on official inflows and the attendant effect on the balance of payments has been outstandingly positive.

With the importance of worker remittances so visible and obvious, it is unfortunate that after Zulfiqar Ali Bhutto’s hugely successful initial efforts to export manpower to the Gulf, so little attention has been paid by successive governments to this endeavour.

The export of manpower is on the top of economic diplomacy initiatives for the governments of India, the Philippines, and Bangladesh, whose inward remittances amounted to $70bn, $28bn and $15bn respectively in 2014. (India is the world’s largest recipient of worker remittances, followed by China at $64bn).

On the other end of the spectrum, the apathetic attitude of our governments is demonstrated by the recent memoranda of understanding signed on the sidelines of the Qatari emir’s visit.

With a major infrastructure push under way in Qatar in preparation for its hosting of the football World Cup in 2022, it is a magnet for regional manpower-exporting countries.

Not so, it seems, for Pakistan which chose to sign two MoUs on the occasion — one relating to sports and the other to cultural exchanges!

Out of a total estimated global pool of 247 million migrants, the total strength of Pakistan’s diaspora has been barely growing over the last several years from its strength of around seven million. Bangladesh has nine million emigrant workers, India around 25 million.

Given the annual growth in its labour supply, the sluggish growth of the economy and the large stock of unemployed, prioritising the export of semi-skilled manpower should be an obvious top area of focus for the government.

However, there is a downside to the rising importance of this source of inflow.

With worker remittances the equivalent of over 6pc of GDP, any disruption to the flow can have serious repercussions for the economy.

This vulnerability is starkly demonstrated in the uncomfortable position Pakistan finds itself in with respect to the request for military help by Saudi Arabia in its offensive against Iran-backed rebels in Yemen.

Worker remittances from the six Gulf Cooperation Council countries, Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman, amount to two-thirds of the total. If the potential ire of these countries is translated to the Pakistani emigrant workers, the pain of adopting �neutrality’ could be serious.

Tailpiece: Given the success of the PRI, it is surprising that the scheme has met a half-hearted response from Shaukat Tarin’s successors at the Ministry of Finance.

After stopping agreed payments to the banks for over two years and building up arrears of several billion rupees, the Ministry of Finance has now tweaked the incentives and resumed clearing the backlog of payment arrears to the banks. (It has also now attempted, in a patently disingenuous statement, to take belated credit on behalf of the incumbent finance minister for the success of the PRI scheme).

One hopes for a return to not just more strategic prioritisation at the Ministry of Finance, but also greater intellectual honesty.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, April 17th, 2015

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Comments (28) Closed

Apr 17, 2015 02:53am

One of the reasons I read Dawn is that I get to learn so much about my own country.

Apr 17, 2015 04:00am

Great point. I brought up the same point yesterday in my commnets to one of the news that Pakistan should start working on a contingency plan for these remittances.

Apr 17, 2015 04:55am

The expats contribute to more than half of PK's foreign income. They are mostly taken for granted by the establishment.

Arsalan Vohra
Apr 17, 2015 05:30am

Excellent perspective! But there is too much Shaukat Tareen in the writeup. If the idea is to make the current government realise that it needs to put in more focus towards worker's remittance, it probably would have been better without bringing out the PRI as part of STs legacy. And yes, the Yemeni issue may serve as a catalyst for diversification.

Apr 17, 2015 07:26am

So we pakistanis work our but off so you can import oil from arabs who hate us

Asad Shairani
Apr 17, 2015 10:17am

Well written as usual.

As you mentioned, 2/3 of the inflows are from the gulf countries and workers there are bound to come back some day (since they don't get resident status). In this case, isn't it safe to assume that workers in the gulf are already sending a bulk of their savings back? In addition to ensuring that money comes in through the proper channel, what steps can the government take to increase remittances (apart from more labor export)?

An article explaining the impact of remittances vis a vis taxation for growing economies like Pakistan from you would be very helpful; specially considering the potential skilled labor flight from the country in the coming years.

Apr 17, 2015 10:17am

A country cannot depend on remittances from pakistanis to build a healthy economy. But it should be taken as a blessing and this money be used to build a better industrial base and expand country's exports. As it is, the few rich use the money to make trips abroad and import items that are not helpful for improving the infrastructure and education.

Apr 17, 2015 01:36pm

@Indian Same with me. I can't rely on Indian media alone anymore.

Apr 17, 2015 02:40pm

Remittances brought USD 15.8 billion (Source: http://www.sbp.org.pk/ecodata/Homeremit_Arch.xls) during FY14 and is the major source of foreign reserve followed by Textile exports which brought USD 13.4 billion (53% of total exports Source: http://www.tdap.gov.pk/tdap-statistics.php) in the same period. I think GoP should re-think about tweaking the incentive scheme for remittances. Few suggestions: 1. Some kind of loyalty programs for overseas workers who send money through banks like credit card points system etc. 2. Are there any investment opportunities for overseas workers? I don’t know . . . 3. How to bank the Pakistani population? Roughly 10% population is banked. It is sad. 4. How to stop businesses activities of hawala operators who generally assist corrupt people to move black money outside Pakistan? GoP should seriously look into this area. Army Chief is doing something about it … that is what I’ve heard.

Apr 17, 2015 02:50pm

Two MOUs with Qatar on sports and culture made me laugh.

M. Emad
Apr 17, 2015 03:59pm

In recent years, for several reasons Middle-East employers prefer non-Pakistani workers.

Apr 17, 2015 05:07pm

@tariq Sir: please note that no matter how good relations are between friendly nations, there are always kinks once in a while. So please blame Arabs as perpetual haters of Pakistan. It is a passing phase.

Apr 17, 2015 05:46pm

Interesting article but the comparison with India & Bangladesh actually shows that Pakistan is doing better as a large percentage of its population is engaged abroad !

Apr 17, 2015 06:19pm

@M. Emad. For obvious reasons that Pakistani labor is expensive compared to India and Bangladesh.

Apr 17, 2015 06:22pm

@Nidderacalling. Foreign remittances do not belong to the government. These funds are primarily used to sustain the families of overseas workers.

Apr 17, 2015 07:27pm

sometimes comparison can be deceptive. One India's population is 6 times that of Pakistan, but indian migrant workers are just three & half times that of pakistan. Two, the remittance of 70 billion by indian migrant worker shows they are enjoying much higher income probably being better qualified and more skilled.

Apr 17, 2015 08:40pm

The analysis starts nicely but gets jumbled up a lot assuming the shape of confusion and unclarity... Sidestepping and attempting to include the gulf political war situation in the analysis only adds to a. More sludgy output. Furthermore pakistan's informal agreements for work visa quotas are already in place and more is in pipeline. Writer should also have looked into labour. Export growth into Dubai Saudis in past 6 years. This is not a nearly tied up piece.

Apr 17, 2015 09:11pm

It is time we the Pakistanis stop self pitying by mentioning Indian example. Pakistan/Pakistanis has done much better than India in remittances in last fifteen years and they need to follow our example. Our Population/Remittances ratio is much better than India and is further improving. Further the "cliche" that remittances are easily stoppable due to some Political issue has no basis in history. In any case, exports are more easily blockable than remittances.

Apr 17, 2015 10:16pm

He is comparing oranges and apples which is not the correct approach. In order to compare two different countries, you need to have common basis for comparison. Pakistan's population is 200 m and india's is 1200 m. so the ratio is 6. pakistan's remittances around $15 billions, multiplied by 6 is $90 billions as compared to india's $70 billions. Pakistan has 7 m workers , multiplied by 6 is 42 m as compared to india's 25m. Now we are getting somewhere.

Apr 17, 2015 11:06pm

Thank you Mr. Sakib Shirani for highlighting this important factor in our economy. Workers' remittances being 6% of GDP is truly a staggering figure. We beg for a few million USDs to our bilateral development partners and take our begging bowl to IMF, because it's easy to do. Whereas, we could have matched the Phillipines 28 bn USD, had we focused on imparting technical education and promoted export of our semi-skilled human resource to flourishing economies. So cheap of Finance Ministry, to give credit for PRI to the incumbent FM. Request to policy-makers, please focus and give top priority to this issue for the good of nation.

Apr 17, 2015 11:10pm

Also, the hundi/hawala system is running in parallel to PRI. Government needs to channelize the remittances, for it's not only better for our economy but also from security perspective, as the money coming through hawala is not accounted for by the state accounting machinery. I think, the government should make arrangements for remittances at zero charges, in order to encourage expatriates.

Fazal Wadood Khan
Apr 17, 2015 11:31pm

its a happy news that remittances to Pakistan has been tripled but again I want to ask the Finance Minister Govt. of Pakistan that what facility you are providing to the overseas Pakistanis if we come back to Pakistan and invest our money into Saving Centre no extra facilities will have to provide, again the Finance Minister to review the facility of Behbood and the amount of 3 Million to be increased for the expats at least our kitchen expenses to be meet we are still unsafe if come to Pakistan please review it and save us while living in Pakistan.

Mumtaz Ali Bohio
Apr 18, 2015 01:01am

There is another aspect to the foreign currency remittances. Such inflows are exempt from income tax if brought through the banking channels and no questions are asked as to the source of these flows. Many Pakistanis, who have no business or any relative living abroad, are mysteriously able to get 'foreign currency remittances' through the banking channel to avail the tax amnesty. This single loop-hole is responsible for tax evasion of billions of rupees. If the country cannot collect enough tax revenues, it will result in budget deficits which in turn lead to BOP deficit. I fear the tax-amnesty scheme, which was devised to increase remittance flows, might be, in part, a cause of BOP problem. I request the writer to give his expert opinion on this tax-amnesty aspect of the foreign currency remittances as well. Thanks. Mumtaz Bohio, DC-IRS-FBR, Karachi

Apr 18, 2015 02:11am

very interesting & informative article, please highlight these points also:- a. what about other parallel systems running along with formal banking system. they transfer amount in maximum 12 hours where as banks still taking up to 5 days. b. workers here in gulf face lot of problems administratively as well other unnecesary restrictions. Govet must take some actions to make expats stay comfortable to whatever extent they can. c. case must be taken at govt level for issuance of green card by GCC.

Woz Ahmed
Apr 18, 2015 02:11pm


Like your logic and yes per head we export more labour than India.

What needs analysts is why the average Indian remits $2800 and the average Pakistani $2150.

A country by country analysis would be more useful.

To be honest South asian unskilled labour are treated like slaves in the gulf, how many have died in Qatar alone in the last year ?

All labour exporting countries need to get together and push for better conditions, otherwise we will just be played off against each other.

Apr 20, 2015 01:37pm

@Adnan The remittance of 70 billion by Indian migrant worker...25-30 billion USD is only workers remittances (Like Pakistan is 15.8 Bn USD in FY14) and remaining invested by NRIs in investment opportunities provided by banks in India like ICICI etc. Pakistan also need to create investment channel for NRPs. Regards,

Apr 20, 2015 01:40pm

@Woz Ahmed Arabs exploit the poverty situation. United Nations and International Labour Organization (ILO) should take actions against these host countries.

Apr 20, 2015 01:45pm

@Ajamal And foreign currency adds in the Country's reserve in State Bank and politicians don't get anything out of it that is why it is not the priority :)