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December 25, 2019

Pakistan among nations that depend substantially on foreign remittances

National

December 25, 2019

LAHORE: Dubbing the overseas Pakistanis ‘national assets’ for the umpteenth time during the last one decade, Premier Imran Khan Tuesday lauded the steps being undertaken by Pakistan Post to channelize the influx of country’s foreign remittances, which had recorded a moderate seven percent growth in 2018 due to significant declines in inflows from Saudi Arabia, the country’s largest source in this context.

One must, therefore, laud the timely initiative of the 33-year old Murad Saeed, the incumbent Federal Minister for Communications and Postal Services, in this regard, though a lot more needs to be done not only to increase remittances, but also to make the funds transfer process more financially feasibly so that migrant Pakistani workers do not use the relatively-cheaper undocumented and illegal modes to send their hard-earned money back home.

Research conducted by the “Jang Group and Geo Television Network,” by taking the April 29, 2019 report of the World Bank and a statistical story published by the American “Forbes” magazine into consideration, shows that the top remittance recipients around the globe during 2018 were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion).As far as the ratio of foreign remittances vis a vis the GDP during 2018 is concerned, reputed American journal, “Forbes,” had come up with the following rankings to identify 10 nations which are most reliant on influx of money sent home by their citizens working abroad:Tonga (40.7 percent) Kyrgyzstan (33.22 pc), Haiti (32.54 pc), Tajikistan (29.02 pc), Nepal (27.99 pc), El Salvador (20.68 pc), Honduras (20, 07 pc), Palestine (16.98 pc), Samoa (16.43 pc) and Moldova (16.25 pc).

While India stands at Number 72 with 2.98 per cent ratio of foreign remittances vis a vis its GDP, Pakistan rests at Number 40 with 6.78 per cent, meaning thereby that our neighbouring nation has more financial niches and avenues to benefit from!In Pakistan, even if the export earnings and remittances both add together, the import figure is still very high, hence leading to an adverse Current Account deficit and consequent borrowing.

List of some richer countries that are least reliant on foreign remittances for their development and economic prosperity:In France, this ratio is just 0.97 per cent, in Austria, it is 0.7 per cent, followed by Iceland (0.65 pc), Sweden (0.57 pc), Russia (0.52 pc), Malaysia (0.48 pc), Italy (0.46 pc), Germany (0.45 pc), South Korea (0.42 pc), Denmark (0.39 pc), Switzerland (0.35 pc), Finland (0.34 pc), Netherlands (0.27 pc), Israel (0.25 pc), Spain (0.24 pc), Greece (0.22 pc), New Zealand (0.22 pc), China (0.18 pc) United Kingdom and Ireland (0.16 pc each), Norway (0.15 pc), Australia (0.13 pc), Japan (0.09pc), Saudi Arabia (0.04 pc) and United States (0.03 pc) In 2019, remittance flows to low- and middle-income countries are expected to reach $550 billion, to become their largest source of external financing.

However, the influx of remittances in Pakistan was dismal as compared to other South Asian nations where transfer of such funds from offshore destination had soared 12 percent to $131 billion in 2018, outpacing the 6 percent growth in 2017.The afore-mentioned April 2019 World Bank report had further revealed: “The upsurge in South Asia was driven by stronger economic conditions in the United States and a pick-up in oil prices, which had a positive impact on outward remittances from some GCC countries. Remittances grew by more than 14 percent in India, where a flooding disaster in Kerala likely boosted the financial help that migrants sent to families. In Bangladesh, remittances showed a brisk uptick in 2018 (15 percent).”The report had stated: “The Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached $529 billion in 2018, an increase of 9.6 percent over the previous record high of $483 billion in 2017. Global remittances, which include flows to high-income countries, reached $689 billion in 2018, up from $633 billion in 2017. The overall increase was driven by a stronger economy and employment situation in the United States and a rebound in outward flows from some Gulf Cooperation Council (GCC) countries and the Russian Federation. Excluding China, remittances to low- and middle-income countries ($462 billion) were significantly larger than foreign direct investment flows in 2018 ($344 billion).

The global average cost of sending $200 remained high, at around 7 percent in the first quarter of 2019.”According to the World Bank’s Remittance Prices Worldwide database, banks were the most expensive remittance channels, charging an average fee of 11 percent in the first quarter of 2019. Post offices were the next most expensive, at over 7 percent. Remittance fees tend to include a premium where national post offices have an exclusive partnership with a money transfer operator. This premium was on average 1.5 percent worldwide and as high as 4 percent in some countries in the last quarter of 2018.”Advantages of foreign remittances: A steady flow of remittances helps struggling nations counter and fight the Current Account Deficit problems because the influx of this money from migrant workers especially provides great relief to bearish economies amidst financial crises and economic downturns. It goes without saying that countries with diversified migration destinations are likely to have more sustainable remittance flows.Remittances can certainly boost aggregate demand and thereby spur economic activity.Disadvantages of high costs of money transfers:Millions of low-skilled migrant workers are vulnerable to recruitment malpractices, including exorbitant recruitment costs.

The ongoing de-risking practices through banks have involved the closure of the accounts of some remittance service providers, hence driving up remittance costs. Expensive modes of sending money from abroad reduces the benefits of migration. Economic acceleration helps increase remittances: Prudent policies in this context, coupled with growth in economic activity in countries where foreign workers are earning, have paid dividends for many countries on the world map. For example, after posting 22 percent growth in 2017, remittances to Europe and Central Asia grew an estimated 11 percent to $59 billion in 2018. Satisfactory growth in economic activity during 2018 had increased outbound remittances from Poland, Russia, Spain, and the United States, major sources of remittances to the region. Smaller remittance-dependent countries in the region, such as the Kyrgyz Republic, Tajikistan, and Uzbekistan, benefited from the sustained rebound of economic activity in Russia. Ukraine, the region’s largest remittance recipient, received a new record of more than $14 billion in 2018, up about 19 percent over 2017.

This surge in Ukraine also reflects a revised methodology for estimating incoming remittances, as well as growth in neighboring countries’ demand for migrant workers. Remittances flows into Latin America and the Caribbean grew 10 percent to $88 billion in 2018, supported by the strong U.S. economy. Mexico continued to receive the most remittances in the region, posting about $36 billion in 2018, up 11 percent over the previous year.

Remittances to the Middle East and North Africa grew 9 percent to $62 billion in 2018. The growth was driven by Egypt’s rapid remittance growth of around 17 percent. Beyond 2018, the growth of remittances to the region is expected to continue, albeit at a slower pace of around 3 percent in 2019 due to moderating growth in the Euro Area.

Remittances to Sub-Saharan Africa grew almost 10 percent to $46 billion in 2018, supported by strong economic conditions in high-income economies.