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Challenge Of Channeling Remittance Flow In Pakistan Economics Essay

One of the biggest challenges faced by the government of Pakistan is to channelize the flow of the remittance as channelizing would contribute towards the real growth. Few out of many suggestions that should be adopted by the developing countries suggested by the Asian development bank in a report issued earlier includes that the fiscal incentives shall be given to those returning migrants who wish to setup small and medium scale business in the country.

One of the other suggestions also includes offering a special exchange rate for those sending the remittances in their domestic saving account to encourage the proper flow of remittances. This step would encourage the Pakistani living aboard to send their money through proper channel.

The other challenge for the government is to make the remittances more redistributive which can be done by making the tax system more progressive to help low income households.

The further articles discusses that the total investment is reduced in the country by 7.7% while the total imports declined by 6.4%. While the exports according to the report increased by 10% and as a whole the GDP showed a decline of 0.7%.

According to this report the least affected by the remittances in Pakistan are the urban non-poor households whose consumption showed the decline of only 1.1% while the farmers, especially the landless were among those who were badly hit by the drop of the remittances.

It is important for the government to take necessary steps to ensure the proper flow of remittances as it is the base of the foreign reserves of the country.

3.1.1 Role of Remittances in Pakistan

(Dr. Ashfaque H Khan, 2009)

Remittances are one of the most important sources of foreign exchange for a developing country. And it is been seen in past that the flow of remittances have grown in past three decades. It is been said in the article that Asia accounted for 23% that is around $ 74 billion with the major portion from India that is 70% followed by Bangladesh with 12% and Pakistan with 9.5% and these three countries together accounts for almost 92% or a remittance inflow of $68 billion in 2008 alone in Asia.

The workers’ remittances is in an upward trend in Pakistan and has shown a growth of almost 8 fold in 10 years with major portion of the remittances coming from USA , followed by UAE and other GCC countries.

Many analyst were surprised to see the upward trend of remittances when the global economy was on meltdown the reason were found to be as many of the south Asians had lost their jobs in the host country and returned with their savings to their home countries while the other reason could have been the rising interest rates in Pakistan, declining exchange rate must have been the reason for the higher flow of remittances in South east Asia and specially in Pakistan.

A remittance helps the developing countries to improve the household’s welfare against their income shocks. Also the increase in recipient’s families’ consumption leads to overall increase in demand for goods and services.

Remittances also improves a country`s debt sustainability level and it is been said in the article that the empirical evidence shows that remittances have a positive and significant impact on the investment and economic growth of a country.

It plays an important role not only in the development of economy through its contribution in promoting private consumption expenditure but also it helps to remove the poverty from the country while it also helps in generating the employment opportunities. However much more efforts are required to reduce the cost and time for sending remittances including removing barriers to entry and competition in remittance market.

3.1 Foreign Articles

3.1.1 Overseas Migration and Remittances

(Overseas Migration and Remittances, 2009)

It is been said in the article that many Pakistani migrants have either family connections or they apply through formal legal channels for the landed migrant status however in both the cases it is been observed that these Pakistani belongs from a rich.

The Middle Eastern market provides the temporary job opportunities primarily to the unskilled and the semi skilled workers. The official cost of labor recruitment in Pakistan is very low and it’s also reported in few cases that few of the migrants suffer from working conditions in the middle eastern market for which much of the blame goes to the subagents involved in the recruitment process.

Before 9/11 Middle Eastern migrants were among the top most to send the remittances however after 9/11 migrants from the United States played an extra ordinary role in the growth of remittances in the country.

The remittances play an important role for the development of the nation however the government should ensure that the suitable working conditions without the exploitation of the rights of labor working outside Pakistan exists and benefits should be provided to those who play an important part in sending the remittance and become the reason of the growth and increasing foreign exchange reserves of a country.

The article further discusses the importance of the role of the government in improving the policies that may help to attract more foreign exchange from emigrants to their home country and use them as a tool for the development of the overall economy.

3.1.2 International Remittances: A Source of Development Finance

(K. M. Abdul Azeez and M. Begum, 2009)

It is been observed in past few years that the trend of migration is increasing every year and the prime factors includes trade liberalization , development of better transportation facilities , better communication network all around the globe and global cultural integration. As a result of migration the remittance brings more and more foreign exchange to a country. This migration is important not only for the families of the migrants working abroad but also is very important for the balance of payment of a country. It plays an important role in GDP as well as the foreign exchange earnings of the third world countries.

There is evidence collected by the World Bank that indicates that when a country that faces huge economic and political difficulties, the citizens who are living abroad is that case supports their economy by increasing the amount of money they send to their countries.

The remittance have always been an important factor used to decrease the poverty of the third world countries .However the decision to remit often is dependent on variety of variables including the macroeconomic policy variables like the interest rates , exchange rates and the income tax prevailing in the home country of the migrant. The other factors also include the demographic characteristics of emigrants like age, sex, marital status, number of dependents of the emigrant in his home country.

The important outcome of remittances is their effect on the balance of payment on the other hand it also helps to relax the foreign exchange restrictions of labors sending countries and help to improve their current account position. Remittances are also the important source for the country for the payment of import bills as the foreign exchange plays an important role for the payments in the international market. Also based on future remittance flow the banks in those countries receiving more remittances are able to borrow long-term financing at lower costs from the international market with the help of the securitization

The article further explains that the remittance has the developing role for the economy as it also helps to improve the standard of living such as health, housing, education and in short it can be easily concluded that it is the major factor for the development for both micro and the macro level of the economy. It also helps to improve the credit worthiness of the country receiving the remittances and as a result its access to international market capital markets also is enhanced. At the macro level remittances can play its part for entrepreneurship and investments which are productive and can turn into increasing job opportunities and income of people in the country receiving the remittances.

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