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The sharp decline in the international oil prices brought a big relief for the government as well as people of Pakistan.
The falling oil prices also have had negative impact on government’s own coffers, but the government neutralised that impact to some extent by jacking up the sales tax on the petroleum products.
The analysts, however, warn that persistent fall in the oil prices could pose a new challenge for Pakistan in the long term in the shape of decline in foreign remittances.
Like any other developing nation, the foreign remittances have been a major and significant source of foreign exchange earnings for Pakistan.
The remittances virtually act as a lifeline for weak economies like Pakistan as they help build foreign reserves and prevent balance of payment crisis by those countries. Additionally, they help revive economic activity, create employment opportunities, reduce poverty and improve the living standard of the people of those countries.
“It is remittances which have saved Pakistan from the balance of payment crisis so far,” prominent economist and former advisor to the finance ministry Dr Ashfaq Hasan Khan said.
However, depressed oil prices are adversely impacting the economies of the Gulf countries from where these remittances are coming and it would eventually hurt our economy as well.
Nearly two-thirds of Pakistani remittances come from the oil-rich Gulf nations which are facing a sharp decline in their revenues because of falling oil prices in the international market.
According to the State Bank of Pakistan, the foreign remittances stood at 18.4 billion dollars in the fiscal year 2014-15 registering a 16.5 percent increase over last fiscal year. In 2013-14, remittances amounted to 15.8 billion dollars.
The biggest inflow of foreign remittances came from Saudi Arabia which amounted to 5.6 billion dollars posting 19 percent increase from the preceding year.
It was followed by the United Arab Emirates from where Pakistanis sent 4.2 billion dollars, registering an increase of over 35 percent.
The remittances from the members of the Gulf Cooperation Council – Qatar, Oman, Kuwait and Bahrain - were 2.1 billion dollars in fiscal year 2014-15 which were 15.6 percent higher than the previous fiscal year.
On the other hand, the combined remittances from the United States and Britain stood at 4.9 billion dollars in the same period which was a meagre increase of 4.8 percent from the previous year.
The remittances target for the current fiscal year 2015-16 is 19 billion dollars and analysts believe that it could be easily achieved.
However, they fear that the inflow of remittances could be hit if the depression in oil prices persisted.
“At this moment, I would not say it is a crisis but it could be a major issue in the coming times,” Dr Ashfaque Hasan Khan said.
Recent reports from the Gulf countries suggest that efforts were underway to steadily replace the foreign work force with the local ones.
In Saudi Arabia, for example, the Ministry of Labour in March announced that within six months, foreigners would be banned from selling and maintaining mobiles phones and accessories for them, as part of efforts to create job opportunities for the Saudi citizens.
In early March, the Ministry of Labour announced that within six months foreigners would be banned from selling and maintaining mobile phones and accessories for them, in an effort to keep open more jobs for Saudi citizens.
The move is expected to affect nearly 20,000 foreign workers. The same exercise would be carried out in other fields like tourism, real estate etc, as Saudi authorities plan to create 1.3 million jobs for their own young people in the near future.
The affected foreign workers could look for jobs in other sectors, but if they fail to do so, then they would have no other option but to leave the Kingdom, according to the new Saudi government rules.
Apart from these measures, the oil rich nations are also taking austerity measures at home which may result in cut in the wages of the foreigner forces or increase the living costs there which would make it harder for migrants to work there.
The Kuwaiti Emir Sheikh Sabah al-Sabah earlier this year called for better management of spending to cope with the falling revenues resulted by the decline in oil prices.
Dr Ashfaque Hasan Khan
Economist
“It is remittances which have saved Pakistan from the balance of payment crisis so far. If the crisis in the Middle East worsened then demand for our workforce would decrease and some of them may become redundant.”
Though the Kuwaiti government had to restore the subsidies on kerosene and diesel it had withdrawn last year over public criticism, it is under tremendous pressure to undertake austerity measures to control lavish spending.
“Lifting petrol subsidies will (also) affect foreign workers who may consider leaving as they can no longer afford the living costs here, and this will also affect our economy,” Kuwaiti MP Mishari al-Sawwagh was quoted as saying.
In view of the emerging situation, the Pakistani government needs to plan out in advance as to how it will cope with all this, but the remedy to such a situation is not that easy, analysts say.
“If the crisis in the Middle East worsened then demand for our workforce would decrease and some of them may become redundant,” Dr Ashfaque said.
He said it could trigger serious socio-economic crisis in the country as it would increase unemployment.
“We already have high unemployment and it would increase if workforce in Gulf became redundant and returned home.”
Dr Shahid Hasan Siddiqui
Economist
“Successive governments must be held responsible if Pakistan faces another crisis. If they had not used these remittances for servicing the trade deficit and instead invested them in a proper manner, we could have easily absorbed the redundant workforce.”
Dr Shahid Hasan Siddiqui criticised successive governments for their inept handling of the foreign remittances and said they should be held responsible if Pakistan faced another crisis.
“If they had not used these remittances for servicing the trade deficit and instead invested them in a proper manner, we could have easily absorbed the redundant work force.”
Moreover, analysts say Pakistan saw exceptionally high increase in remittances over the past decades, raising apprehension that ill-gotten and corruption money was also routed to Pakistan in the shape of remittances.
According to Dr Ashfaque Hasan Khan Pakistan has witnessed an unusual growth of 30 percent increase in remittances in this period as compared to those from other regional countries like Bangladesh, Sri Lanka etc.
He said the remittances have now normalised mainly because of crackdown in Karachi and other major cities.
Dr Siddiqui feared a major crisis would erupt if the western countries started demanding action for money-laundering in view of the unusual growth found in the remittances inflow.
The writer is a senior journalist based in Islamabad