Wednesday, May 5, 2010

Recession and remittances By Mohiuddin Aazim

The United Arab Emirates has taken over the US as the largest source of home remittances sent by overseas Pakistanis this fiscal year possibly because the US economy is yet to recover fully from the Great Recession of 2008-09. While Saudi Arabia retained it second position, the United States has slipped to the third place.

The average rate of increase in remittances from the US in the last four years has been much lower than that of the GCC countries. An impressive average growth of 34 per cent per annum in case of the UAE, Bahrain, Kuwait, Oman and Qatar exceeded 15 per cent of Saudi Arabia. Clearly, the centre of gravity of Pakistan’s home remittances has shifted towards the Middle East. However, still a huge amount of money comes from the US and the UK with an average growth rate of 8.5 per cent and about 16 per cent respectively.

“So our policies must aim at retaining the levels of remittances from these countries and increasing their growth rates as well,” says a central banker involved in monitoring of remittances’ inflows.

The inflow of remittances from the US are expected to rise in April-June this year as the US economy is likely to continue shrugging off the aftereffects of the recession. But going forward, if the world’s top economy plunges into a double-dip recession, as is being feared by many in the US and elsewhere, then such inflows would remain low. “Besides, since the 9/11 terror attacks, export of Pakistani manpower to the US has remained almost static. In order to attract larger remittances, we need to persuade the US authorities to liberalise issuance of work visas to Pakistanis in future,” said an official of Overseas Pakistanis Foundation.

The British economy is coming out of the recession more slowly than the US economy and migration of Pakistani workers to UK has also not accelerated much after the 9/11. Therefore, one should not anticipate a big increase in remittances from there.

But as far remittances from the GCC countries are concerned, these look set to remain strong in future for a couple of reasons. Though the oil price boom in the Gulf region is no more, a large number of Pakistani professionals including doctors, engineers, bankers, teachers and highly-skilled to semi-skilled labourers are well settled in that region. In some cases, people of Pakistani origin are even engaged in business activities. “All this is going to keep the inflow of home remittances steady.”

However, remittances from Dubai (which is part of the UAE) have declined recently. The emirate’s wealth is dependent on services and real estate sector activities that kept attracting huge foreign investment in the past.

After the global financial crisis and recession, foreign investment started drying up slowing down the pace of Dubai’s economic growth and Pakistanis living there also witnessed a decline in their incomes. But, most professional Pakistanis and high-skilled craftsmen are believed to have found alternate jobs in Abu Dhabi. This is evident from a simultaneous increase in remittances from there.

On balance, the outlook for remittances looks satisfactory in coming years. But there is no room for complacency. Bangladeshi workers’ remittances have remained constantly higher than those of their Pakistani counterparts for the last four years and the trend is continuing through this year.

For the first time in FY06, overseas Bangladeshis sent back home $4.8 billion—higher than overseas Pakistanis’ remittances of $.4.6 billion.

The trend continued in FY07, FY08 and FY09. Bangladesh attracted $6 billion, $7.9 billion and $9.7 billion remittances in these years whereas Pakistan received $5.5 billion, $6.45 billion and $7.8 billion respectively. During the first half of this fiscal year also, remittances of Bangladesh at $5.53 billion was well above Pakistan’s $4.53 billion.

Higher development spending on education sector to produce and export high-quality professionals and high-skilled manpower can help Pakistan in accelerating the pace of growth in home remittances. Whereas Islamabad keeps persuading developed countries to give our exporters freer access to their markets, it hardly makes any serious effort to seek freer movement of Pakistani manpower to these countries. That too should be on agenda of the policymakers.

The launching of Pakistan Remittances Initiative—a mechanism jointly developed by the Ministry of Finance, Ministry of Overseas Pakistanis and the State Bank—late last year has provided overseas Pakistanis some incentives in sending foreign exchange back home through official channels. The initiative ought to be continued with constant improvements

Source: http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/recession-and-remittances-350

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