Remittances from overseas Pakistanis rose 32 per cent year-over-year to $3.1 billion for the first four months of fiscal 2009/10, according to the State Bank of Pakistan. The central bank expects over $8.5 billion this year in remittances in documented remittances from about 7 million Pakistanis abroad, equivalent to about 5 per cent of Pakistan's gross domestic product. “It is important. That is the size of our current account gap,” State Bank of Pakistan Governor Salim Raza told the News. Pakistan is among the top ten destination countries receiving foreign remittances. Some estimates indicate the formal remittances account for less than half of the actual amount sent to Pakistan.
Finance Minister Shaukat Tarin has said that increasing remittances from Pakistani diaspora is the best way to "get rid of dependence" on international lenders. "International financial institutions lend us with strings attached. We can say goodbye to them."
The government has launched Pakistan Remittance Initiative (PRI) to bring about a fundamental change in the remittance regime and double the volume of transfers in five years. The effort is aimed at encouraging remitters to use the country’s banking channel by streamlining this process to overshadow the illegal hawala system commonly preferred for being cheap and speedy. Now five banks will transfer wired amounts in the account of the receiver within 24 hours.
In March this year, Dr. Farooq Sattar, Federal Minister for Overseas Pakistanis talked about an ambitious target of $15 billion in remittances in 2009-10 while speaking to the media at the launch of a Western Union book titled "Marhaba Musafir". The book contains the basic information about the various countries where Western Union's has operations.
The remittance dollars pouring in to the nation's economy offer the much needed lifeline to the poor in the midst of multiple and serious crises confronting the people of Pakistan. Not only do these remittances dwarf the foreign loans and aid received by Pakistan, the money remitted is far more effective in helping the national economy in the following important ways:
1. Unlike foreign aid, the remittance money from overseas Pakistanis comes with no strings attached. These dollars do not serve the geopolitical interests of any foreign power. Nor are the funds used to pay for unnecessary imports or to pay expensive foreign consultants and contractors from donor countries.
2. While foreign assistance dollars are funneled through the government, the bulk of the remittance money goes directly to the people and it does not feed graft which siphons money into foreign bank accounts of corrupt politicians and bureaucrats.
3. The remittance money has a significant stimulus effect on Pakistan's economy. It invigorates the local economy because it is spent by the people to buy mostly domestic products and services that create more jobs which support more local consumption, and create even more employment opportunities.
In the United States for example, most of the food aid, including the additional $770m food aid last year, for the poor countries requires the aid recipients to purchase food from the US agribusiness. These funds do not help the farmers in the poor nations grow food for the countries to become less dependent on foreign help. The US farm lobby continues to flex its muscle and enrich itself, without regard for the severity of the hunger crisis in the poor nations resulting from sharp increase in food prices. Three years ago, farmers and their allies in Congress effectively destroyed an effort by the Bush administration to begin the switch to untied food aid. The current composition of US Congress is no different, as far as the overwhelming power of the farm lobby is concerned.
European governments switched to giving all-cash donations for food in the mid-1990s, arguing that cash allows more flexibility in responding to crises and that the U.S. uses its food aid as a form of farm subsidy. But the Europeans also continue to erect various barriers to food imports from poor nations that could improve the viability of agriculture in many Asian and African countries. 
Private donations abroad by Americans, including pledges to charities and churches and disbursements from corporate foundations, now are three times as large as America's official development assistance of $20 billion, and there is every indication this trend will continue. Washington's contribution looks even more miserly when the ODA data are broken down. Here are some basic facts about US foreign assistance:
1. Less than half of aid from the United States goes to the poorest countries.
2. The largest recipients are strategic allies such as Egypt, Israel, Russia, Pakistan, Afghanistan and Iraq.
3. Israel is the richest country to receive the highest per capita U.S. assistance ($77 per Israeli compared to $3 per person in poor countries).
4. Even after the tripling of the US aid to $1.5 billion a year to Pakistan under Kerry-Lugar bill, it still amounts to about $8 per Pakistani.
According to Asia Times, last year only five of the 22 countries considered industrialized - Norway, Denmark, the Netherlands, Luxembourg and Sweden - achieved the donor benchmark of allocating 0.7% of GNP to ODA. The benchmark was adopted at the Earth Summit in Rio de Janeiro in 1992 under the UN Agenda 21 program for eradicating poverty through development assistance. No other countries have even come close to meeting the target.
France managed 0.41% of GNP last year, the United Kingdom 0.34%, Germany 0.28%, Canada 0.26%, Spain 0.25% and Australia 0.25%. Japan, the only Asian participant, came in a lowly 19th with a paltry 0.2%, maintaining a reduced ODA commitment that dates back to 2001.
Dambisa Moyo, a former economist at Goldman Sachs, and the author of "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.", recently argued in a Wall Street Journal OpEd that "money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial."
She goes on to say, "Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.
Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster."
Last year, remittances to various other Asian countries were as follows: $8.9 billion for Bangladesh, $27 billion for China, $30 billion for India, $6.5 billion for Indonesia, $2.2 billion for Nepal, $1.8 billion for Malaysia, $16.4 billion for the Philippines, $2.7 billion for Sri Lanka, $5.5 billion for Vietnam and $1.8 billion for Thailand, according to International Labor Organization estimates.
While recognizing that there is no one silver bullet to alleviate poverty, microfinancing, along with social entrepreneurship, is becoming an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people toward self-reliance by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. Supported by private foundations working in Pakistan, all efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.
The foreign remittances from overseas Pakistanis and private efforts are clearly helpful to the poor in the short to medium term. However, it is extremely important to recognize that the remittances alone are not sufficient for long-term economic progress based on the much needed human development that translates into a highly productive work force contributing to a vibrant national economy. It is absolutely necessary for the Pakistani state to make significant public investments in education, healthcare, infrastructure development and pursuit of good policies and competent governance in the country.
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Aid, Trade, Remittances and Microfinance
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Pakistan Remittance Profile
Human Development Slipping in South Asia
Governance in Pakistan
The State, Religion and Ethnic Politics: Afghanistan, Iran and Pakistan
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1 year ago
4 comments:
Remittances aren't really very useful from a long term economic perspective.Yes they do increase consumption at home but create prctically no long lasting benefits in the country except ofcourse to the immediate kith and kin.
Instead of remittances(which will happen anyway cause people have responsibilities at home) the government should focus on getting its oversease citizens to invest inside their economy and return to their countries with the skills and knowledge acquired abroad.
That will have a much longer lasting impact than a few dollars trickling in from here and there.
Anon: I agree that remittances are not a substitute for public investments in human development and infrastructure for long-term benefits to the nation.
The corruption of Pakistani politicians is exceeded only by their incompetence. With economy in virtual recession, the FDI is dropping as reported by The News:
Thursday, December 17, 2009
KARACHI: Net foreign investment in Pakistan fell 25.6 per cent to $1.08 billion in the first five months of the 2009/10 fiscal year compared with $1.45 billion in the same period a year earlier, the central bank said on Wednesday.
Out of total foreign investment, foreign direct investment fell 52.2 per cent to $774.0 million in the first five months of the fiscal year which began on July 1 from $1.62 billion for the same months last year, the State Bank of Pakistan said.
But foreign portfolio investment flows reversed, with a $311.3 million inflow in the July to November period compared with an outflow of $162.9 million in the same period last year.
Authorities imposed a floor on the Karachi Stock Exchange benchmark index in August last year as political uncertainty and economic and security worries drained investor confidence.
The floor discouraged new investment and also led to a sharp outflow of funds, as foreign investors sold holdings in off-market trade.
The floor was removed in December. The International Monetary Fund (IMF) saved Pakistan from a balance of payments crisis with a $7.6 billion emergency loan package in November last year. The loan was increased to $11.3 billion on July 31.
Pakistan’s economy is in virtual recession as gross domestic product growth in the 2008/09 fiscal year of 2 per cent is about the same as population growth. The IMF has projected GDP growth flat at 2 per cent this fiscal year.
Security concerns over a Taliban insurgency based in the country’s northwest and chronic power shortages have also put off investors.
Here are some excerpts from a Businessweek story on microfinance in India:
Savita Ramesh Rathore stands at the door of her dimly lit workshop in Mumbai's Dharavi slum, filled floor to ceiling with bundles of old clothes, and talks about the cost of her son's wedding last year. "Jewels, clothes, food, the town hall," says Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($647) from moneylenders charging 60 percent interest and took additional loans from friends. Three months ago she got a 10,000-rupee loan from urban lender Hindusthan Microfinance at an interest rate of just over 20 percent to repay some of that debt.
Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to research firm Micro-Credit Ratings International. As Hyderabad-based SKS Microfinance plans to become the first microlender in the country to go public, an industry credited with helping alleviate poverty is suddenly provoking comparisons to subprime lenders in the U.S.
"Globally, microfinance is showing characteristics of the Western financial markets before the collapse," says Sanjay Sinha, managing director at Micro-Credit Ratings in Gurgaon. "In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises."
Microfinance firms make loans in poor areas largely shut off from traditional banking services. The past two years have been marked by surging defaults in some countries. Microfinance markets in Nicaragua, Morocco, and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a "serious repayment crisis," according to a February report from policy and research firm Consultative Group to Assist the Poor.
India, where more than 600 million people live on less than $1.50 a day, is the world's largest microfinance market. Most microfinance loans in India range from 5,000 to 20,000 rupees ($108 to $431), with interest rates ranging from 18 percent to 33 percent. Although Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, levels may be higher because some lenders roll over loans to struggling borrowers to avoid defaults, says Micro-Credit's Sinha.
Microfinance lending in India may surge by about 40 percent annually over the next few years, says Sinha. SKS, betting the potential for growth will attract investors, is seeking regulatory approval for an initial public offering. Basix Group, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, says Chairman Vijay Mahajan. Others are likely to follow. Until now, microfinance companies have relied on loans and grants from banks, insurers, and foundations for funding, he says.
Micro-Credit's Sinha worries that growth in the microfinance market is masking an erosion of lending standards that may spark rising defaults. India doesn't have a nationwide system for tracking borrowers' credit histories, making it hard for lenders to check whether clients have multiple loans. "There is significant investor interest in microfinance companies' public issues, but it's being driven by irrational exuberance," says Sinha.
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