Saturday, September 17, 2011

Pakistan to Terminate IMF Bailout Early

Citing significant improvements in Pakistan's current account balance, Pakistan's Finance Minister Dr Abdul Hafeez Shaikh has said that his government would not waste its energy on reviving the currently suspended IMF program that began in 2008, or seek a new IMF bailout, according to a report in Pakistan's Dawn newspaper.

Pakistan's decision follows the latest State Bank report of a current account surplus equivalent to 604 Million USD in the second quarter of 2011.

The surplus is the result of rising exports from Pakistan and growing remittances from Pakistani diaspora, the 7th largest in the world.

Pakistan's exports in the first two months of the current fiscal year (2011-12) surged by 20.26 percent over the corresponding period of last year. Exports during July-August (2011-12) were $4,167 million as compared to the exports of 3,465 million during July- August (2010-11, according to a GeoTV report citing data from Federal Bureau of Statistics (FBS).

According to official data as reported by Reuters, remittances rose 40.45 percent to $1.31 billion in August 2011, compared with $933.06 million in the same period last year.

Pakistan has about $18 billion in foreign exchange reserves, according to Dawn News. It's about 6 months worth of imports at the current rate.

Currency traders reacted negatively to the government's decision to part ways with the IMF as the Pakistani rupee hit its second record low against the dollar in two days on Friday, touching 87.92 before firming to 87.75/78 at the close.

Some analysts believe that the timing of the decision to free itself from the IMF is motivated by the ruling party's desire for more spending on populist programs to impress its voters before the coming elections. This is likely to make the budget deficits worse in the absence of IMF's demands for reforms to cut spending and raise revenues to narrow Pakistan's budget deficits to 4.5% of GDP.

Related Links:

Haq's Musings

Pakistani Diaspora Among the World's Largest

Pakistan's Rising Exports and Remittances

Pakistan Car Sales Up 61%

Pakistan to Swallow IMF's Bitter Medicine

IMF and Pakistan- A Case Study

Pakistan's Economic Performance 2008-2010


Rameez said...

Riazbhai, I hope you are not a supporter of Zardari and Gilani. This IMF is a bad thing because it is a way to get more money from IMF in the future so that more money could be looted by these people.

Everyone knows it is a political game and people like you believe them with their cooked up numbers.

Anonymous said...

Anonymous said...

This is great news! Despite the corrupt government the people of Pakistan shine ..

Anonymous said...

What you have written is only half truth. You conveniently skipped the other bitter half - it was yet another failed program.

Yes it is true Pakistan terminated the IMF bailout program early, but the reason was Pakistan's failure to carry out Power reforms. It was the 11th failed program (amongst the 12 loan programs for Pakistan) that did not meet its set of objectives.

Here is a bit of history about the failed loan programs for Pakistan.

As per Dawn's editorial, the real reason for Pakistan to terminate the IMF program was to throw off the constraints that an IMF programme imposes in the run up to the next general election. The three key demands of the IMF
- holding down the fiscal deficit
- reforming the power sector, and - nudging upwards the tax-to-GDP ratio, are all politically unpopular and undermine the politics of patronage.

Further, the editorial argues that if that does happen, what will come next is almost inevitable: Pakistan will be forced back into the arms of the IMF. And the next time the IMF is unlikely to be as lenient. Indeed, even at present, if the country`s economic stewards were to negotiate a fresh deal with the IMF immediately, the conditions likely to be imposed are what are causing the political bosses to baulk. But there will be a reckoning eventually and if in a post-election scenario the country is saddled with a fiscal deficit in the range of seven to eight per cent as is likely, the IMF will show little sympathy.

Riaz Haq said...

Indian Anons:

India runs huge trade and budget deficits and therefore heavily dependent on foreign inflows of loans, FDI and FII to drive its economic growth and to meet its debt obligations....not very different from Greece and other nations depending on foreign inflows. And we all know how quickly Greek economy went from being healthy to being very sick....and how many Western economies in the twin-deficit club are also suffering now.
Since 2007–08, the fiscal deficit has increased to around 6.5 to 7 per cent of India’s GDP, subsequently leading to a combined federal and state deficit of over 10 per cent of GDP in 2009–10. The actual numbers are higher, by at least 1 per cent, as some items were kept off the balance sheet.

Riaz Haq said...

Brazil, India current account deficits leads to ‘inevitable’ crisis warns a Chinese economist:

Li Daokui told a forum that emerging economies such as Brazil and India face fiscal and current account deficits and a crisis was “inevitable,” Caijing Magazine reported on its website “China will play a very important role during the financial consolidation”.

But there will be no such crisis in China because it is quite different from most other developing and developed countries,” he said. In February, the Indian government raised “serious concern” about a trade deficit that could more than double to 278.5 billion USD in three years and may cause an unquestionable current account deficit.

Brazil's current account deficit ballooned to a record for the month of March as foreign companies in Brazil sent more profits home and Brazilians spent more on travel and goods overseas. In January, the International Monetary Fund warned fiscal balances in Brazil, China and India were weaker than it had earlier projected.

Li Daokui also expects the US dollar, Euro and Yen to face downward pressure over the medium and long term.

The IMF had projected Brazil's debt-to-GDP ratio at 66.8% and India's at 71.8% while for China it had projected a debt-to-GDP ratio of 19.1%, warning of deterioration in the fiscal accounts of India and Brazil.

The Brazilian government had since announced budget cuts, but the country still need to do more to earn an upgrade on its sovereign debt rating, according to analysts.
For India, however, it could easily bridge the deficit if its government manages to bring at least part of the black money stashed away by Indian citizens in overseas tax havens.

Ashmit (India) said...

Are you kidding yourself?! Pakistan failed to adhere to the norms regarding fiscal discipline stipulated by the IMF.

The question is not if Pak said "NO". The question is was pak eligible to say "YES".

And you cite concerns about India's fiscal deficit. Worrisome as the situation is India with a deficit of around 5%, appears to be better positioned than Pak which has a fiscal deficit of 6.3%.

As far as the India's CAD is concerned, for FY10-11, it's at levels that most economists would term "manageable" - 2.6%.

Besides, indian exports have thrown up some stratling growth figures in the recent months.

And and as far as the debt to GDp ratio is concerned. Please try to scracth beyond the surfaace to look at the fine print.

For one, the debt to GDP has come down to about 60% from about 77% approx in 2007.

Secondly, the context of India's debt is vastly different. A sizeable chunk of india's public debt is rupee denoninated and owed resident agents - hence, not likely to be impacted by international debt and currency fluctuations. And fnally, public debt is largely held by PSU dominated banking sector - which plays as per the rules of the govt - hence highly unlikely that they will give a rude shock to the govt.

Meanwhile, pak stares at a ridiculous picture. The volume of data on almost insurmountable challenges, given the track record, is almost overwhelming. And delusional thinking about economic prospects, really doesn't change much.


Riaz Haq said...


Please study the research on twin deficits and how the two affect each other to assess which nation is closer to the situation in Greece.

India has had persistent fiscal deficits for decades and its total fiscal deficit including fed and states is over 11%, far higher than Pakistan's 5-6% of gdp. This deficit spending feeds into India's growing inflation and rising trade deficits by stimulating consumption and increasing imports.

Ashmit (India) said...

"which nation is closer to greece"

wow. delusional but funny.

Anyways, according to a recent report - brazil will be pledging USD 10 billion to buy bonds of some of these ailing euro nations.

And Brazil's fin min will be raising the same issue at the BRIC summit to encourage more support from these emerging economies.

So you are suggesting that the country that might actually be lending a helping hand (India) to these countries is the one ailing from the same problems?! And you are the only one who spots the irony?!

And never mind the second fastest growing economy. Never mind RBI's attempts to cool off growth while, the rest of the world tries to stimulate growth.

Debt is worrisome, but as i have already pointed out to you the nature and the composition of debt positions India in a relatively safer zone.

But - "which nation is closer to greece" - made my day. Thanks so much.

Riaz Haq said...

Ashmit: "So you are suggesting that the country that might actually be lending a helping hand (India) to these countries is the one ailing from the same problems?! And you are the only one who spots the irony?!"

Greece did not happen in a day; it took years of twin deficits before the bondholders and investors stopped lending and investing last year.

The biggest contributors to IMF and WB are US and Euro zone nations and most of them are members of the twin-deficit club dealing with huge and growing problems of their own.

The only nation today most capable of saving them is China which runs huge trade surpluses resulting in over $3 trillion in reserves....a far cry from India's puny reserves.

Riaz Haq said...

Here are some excerpts from an opinion piece about India's talk of setting up a sovereign wealth fund (SWF):

Unlike China and other East Asian countries, which have established such funds on sustained current account surpluses, India has been running persistent current account deficits. Its current account deficit touched $ 29.8 billion in fiscal 2009 as against $ 15.7 billion in fiscal 2007. Unlike West Asia, India does not have any dominant exportable commodity (such as oil or gas) so as to generate significant surpluses. It continues to be a huge net importer of oil and gas. The country’s current account deficit is widening despite steady growth in software services exports and a rise in workers’ remittances from overseas Indians.

Its persistent current account deficits have been financed by large capital inflows in the form of portfolio investments and other volatile capital flows that are subject to capital flight. Given the overriding presence of volatile capital flows in India’s forex reserves, coupled with vulnerability to external shocks, it would be erroneous to consider its foreign exchange reserves ($ 280 billion) as a position of strength.

India’s external debt has been rising steadily for the past few years on account of higher borrowings by the Indian companies and short-term credit. Besides, India also runs a perennial fiscal deficit which means that raising substantial money for sovereign fund from budgetary allocation would be extremely difficult.

Santiago Principles

AS far as the proposed fund’s objectives to invest directly in strategic cross-border assets are concerned, the Indian policy-makers need to recognise that the overwhelming majority of sovereign funds are passive investors. In the rare cases where SWFs have made direct investments, they have not sought controlling interests or active roles in the management of invested companies, as private investors do. Even the large-scale direct investments made by SWFs in US and European banks during 2007-08 were minor in terms of bank ownership and did not come with any special rights or board representation.

Any direct investment in strategic assets by a sovereign fund will invite severe criticism for its alleged political and non-commercial objectives. Not long ago, the Western world had characterised SWFs as "villains" and introduced new policy measures, popularly known as the Santiago Principles, to regulate the investments of SWFs globally. Thus, acquisition of strategic cross-border assets (including natural resources) will not be a cakewalk. Also $ 10 billion is not enough to acquire strategic assets abroad-unless they become very cheap.

Furthermore, there is no guarantee that investments made by the Indian fund will be profitable. As witnessed during the global financial crisis, SWFs from West Asia, China, Singapore and Norway suffered huge losses for their investments in Western banks and private equity funds.

Paradoxical as it may sound, extreme poverty and hunger still pervades India. For New Delhi, the first priority should be to free the nation from hunger, malnutrition and illiteracy rather than financing the acquisition of strategic assets or rivals abroad.

In this regard, a portion of the country’s forex reserves could be prudently used in the improvement of physical infrastructure, education, health and financial services, particularly in rural India.

Anonymous said...

Dear Riaz

India's External debts Internal debts are no doubt big But the GDP growth rate is also 8 %

This growth rate brings FDI FII investments

Secondly you simply omitted India's service Exports which are 9 th Highest in the world and were 100 Billion dollars Last year

SImilarly our domestic savings rate is also above 35 %

Anonymous said...

Current exchange rate: 1 USD ~ 90 pkr.

Soon it will reach 150. May be in 4-6 months.

- No Aid
- No IMF loan
- No remittance due to unemployment in West.
- Oil collapse. No hand out from arabs.

Future looks gloom for pakistan. Good luck.

Riaz Haq said...

Anon: Current exchange rate: 1 USD ~ 90 pkr.Soon it will reach 150. May be in 4-6 months.
- No Aid
- No IMF loan
- No remittance due to unemployment in West.
- Oil collapse. No hand out from arabs.
Future looks gloom for pakistan. Good luck."

So how would India fare if the West suffers?

Let's see:

-Big drop in FDI and FII to India

- Big decline in NRI remittances to India

- Big drop in exports to US and EU

- Fewer cyber coolie jobs

- Big decline in foreign aid and loans from Western nations and IFIs

- India's twin deficits skyrocket

- India's hunger and poverty shoot up

- Riots in the streets

- Maoists gain momentum

Ashmit (India) said...

-Big drop in FDI and FII to India

- Big decline in NRI remittances to India

- Big drop in exports to US and EU

- Fewer cyber coolie jobs

- Big decline in foreign aid and loans from Western nations and IFIs

- India's twin deficits skyrocket"

Eveytime you enlist such indicators - you only manage to score a self goal.

One needs to appreciate that these moves - are associated to the global jitters. Hence, depending on a country's degree of engagement with the global economy, these developments have similar impact on all nations.

So if an emerging economy such as India, which sailed thru the 2008 trauma, is under such pressure - it only implies that defunct economies like that of pakistan will see an impact that will be more severe, crippling and demoralising.

Your creative abilities in tweaking facts to suit wishful thinking, fail to inspire any confidence about an economy that is ailing.

But most importantly, your childish attempts are, frankly, not in coherence with the image of an educated, experienced and accomplished expat that you seek to convey through your most extensive profile titled "about me".

You enlisted these far fethched assumptions to malign the india story, while in no way responding to issues raised in the previous comment.

All this, despite your claims (pannning the entire history of your blog) that you are aiming at objective assessment of ground realities in the region - hoping for some credibility.

You, and your ill conceived attempts to target india are no different from trolls looking to fight emasculation by overcompensating in cyberspace.

Face it. You are as jingoistic and fanatical as the ones that you criticise.


Adnan said...

Current exchange rate: 1 USD ~ 90 pkr.

How sad that our rupee has become worthless now. When I was young in Pakistan the phrase "do takey ka nahin" use to be an insult to Bangladesh currency. Today we are worse than them.

Riaz Haq said...

Ashmit: "it only implies that defunct economies like that of pakistan will see an impact that will be more severe,crippling and demoralising."

In Pakistan, exports account for about 15% of gross domestic product, compared with nearly 25% in India and 40% in China. So the impact on Pakistan will be less severe than more globalized economies like India and China.

Ashmit (India) said...

"In Pakistan, exports account for about 15% of gross domestic product, compared with nearly 25% in India and 40% in China. So the impact on Pakistan will be less severe than more globalized economies like India and China."

Firstly, you have thrown the data at me. And while in the past you have given little reason to doubt your figures (underlined with sarcasm), it would be great to have a link that autheticates your claims.

Next, in relative terms one could perhaps conclude that india is "exposed" to a greater extent. And depending on how naive one is - perhaps the conclusion can be used to argue that India is at greater risk.

However, the USP of the indian eco is not exports, but local demand. Hence, with an economy expected to grow between 7-10% in the coming decade - India, by way of local consumption, is hedged (to a certain extent)against global concerns.

Meanwhile, pak might have lower exposure, but no local growth to lean on for support. Pak economy over last few years has grown at roughly 3% - clearly not enough to fuel substantial demand.

Pak is in serious economic trouble. And though it might not fall, it is nervously close to the edge.


Riaz Haq said...

Ashmit: "Pak is in serious economic trouble. And though it might not fall, it is nervously close to the edge."

You can believe whatever you want.

But I deal in facts and figures and careful analysis, not just opinions and hype...whether it's positive hype about India or negative hype about Pakistan.

Only real data and insights can help improve the situation India or Pakistan, or any other country for that matter.

Riaz Haq said...

Here's the early fall-out from Pakistan's divorce with IMF, as reported by The Express Tribune:

It was largely expected, but on Thursday the Asian Development Bank said it in public: the Manila-based lender will not be providing any budgetary support loans to Pakistan until the International Monetary Fund gives its go-ahead, a highly unlikely prospect after Islamabad abandoned its IMF bailout programme.

Addressing his maiden press conference in Islamabad, Werner Liepach, the ADB’s Pakistan country director, said that while he agreed with the finance ministry’s assessment that the country’s external financing situation will remain stable for the next few months, it remained vulnerable to international shocks, most notably a spike in oil prices or a recession in the United States and the European Union.

“Pakistan needs to look beyond immediate factors and better to have broader picture in mind,” said Liepach, referring the debt crisis and recession fears in Europe and the United States respectively. The two markets are the biggest destinations for Pakistani exports, collectively accounting for about 45% of Pakistan’s foreign trade.

Liepach’s assessment about challenges posed by a “W-shape recession” aligns with the viewpoint of independent experts who have cautioned that the country may face balance of payments problem in later part of the fiscal year ending June 30, 2012.

Finance Minister Abdul Hafeez Shaikh has recently announced that Pakistan would not seek new IMF loan as it can payback the $9 billion earlier loans on back of exceptional growth in exports and remittances. Pakistan will repay first instalment of $1.4 billion to the IMF in February next year. Pakistan will also have to payback $700 million to the ADB this year.

Riaz Haq said...

Here's a Bloomberg report on Karachi stocks rally after rate cut by SBP:

The Karachi Stock Exchange 100 Index, which has climbed 0.6 percent this year, rose 2 percent to 12,092.32 at the 3:30 p.m. local time close, its highest since Aug. 2. Oil & Gas Development Co., the biggest fuel explorer, rose 3.7 percent to 141.03 rupees and Fauji Fertilizer Co., the biggest urea maker, rose 4.5 percent, to 178.06 rupees.

The State Bank of Pakistan reduced the discount rate to 12 percent from 13.5 percent, according to a statement in Karachi on Oct. 8. Three of five economists surveyed by Bloomberg News predicted a 1 percentage point cut, and the remainder forecast a 0.5 percent reduction.

Acting Governor Yaseen Anwar had room to act after Pakistan’s inflation rate dropped 2 percentage points in the past three months. A rate cut might support an economy that’s seen growing less than half the pace of fellow South Asian nations India, Bangladesh and Sri Lanka this year.

‘Attractively Priced’

“With the level of the rate cut, today’s jump was expected,” said Habib ur Rahman, who oversees 7 billion rupees ($80 million) in stocks and bonds at Atlas Asset Management Ltd. in Karachi. “I can see the market continuing to gain till December because high-yielding stocks are attractively priced.”

Global funds sold $47.1 million worth of Pakistani stocks in July and August compared with net buying of $95.6 million last year, according to central bank data.

The Karachi Interbank Offered Rate, the benchmark borrowing rate for commercial banks, fell to 11.97 percent from 12.90 percent, according to Bloomberg data. The yields on the 12-month treasury-bill and the 10-year investment bond both declined by 1 percentage point to to 12.85 percent and 12 percent respectively, according to Arif Habib Ltd., in Karachi.

The rupee, which has shed 2 percent this year and dropped to a record low on Sept. 16, declined 0.3 percent to 87.47 to the U.S. dollar. The central bank conducted what it called a “calibrated intervention” last month to stabilize the currency.

Prime Minister Syed Yousuf Raza Gilani’s government is aiming to boost economic growth to 4.2 percent in the fiscal year ending June 30, from 2.4 percent in the previous year, one of the lowest expansions in the past decade, as the country struggled to cope with floods and militant attacks.

Floods in August forced more than one million people from their homes and damaged crops in parts of southern Pakistan still recovering from last year’s worst ever monsoon inundation that devastated the region. Terror attacks in the South Asian nation have killed at least 35,000 people since 2006, according to government estimates.

Stimulating Investment

The central bank decided to slash its policy rate for a second straight meeting because of a “high probability” of meeting the inflation goal for fiscal 2012 and to stimulate investment, according to central bank’s statement. The State Bank is targeting an average inflation of 12 percent in the year ending June 30, 2012.

Consumer prices rose 10.46 percent in September from a year earlier, after climbing 12.43 percent in July, according to the Federal Bureau of Statistics.

“If the rate cut is backed by other positive factors like an ease in inflation and a pickup in growth activity, we can see the index around 14,000 points by June 2012,” said Mohammad Shoaib, who oversees the equivalent of 32 billion rupees in Pakistani stocks and bonds at Al-Meezan Investment Management Ltd. in Karachi.

Riaz Haq said...

Stock and credit markets respond positively to rate cut by Pak central bank, according to The Express Tribune:

KARACHI: The bond and equity markets have reacted strongly to central bank’s surprise decision of slashing the interest rate to bring it on a par with pre-2008 crisis levels.

Karachi inter-bank offered rate (Kibor), the benchmark six-month lending rate, plummeted 95 basis points in a single day to a 26-month low of 11.96%, according to a Topline Securities research note.

Furthermore, yields of the actively traded one-year treasury bills and the benchmark 10-year Pakistan Investment Bonds fell by 75 basis points and 60 basis points to trade around 11.90-93% and 12.00-05%, respectively.

The State Bank of Pakistan (SBP) on Saturday cut its benchmark discount rate from 13.5% to 12%.

The rate cut has also benefitted well the stock market on account of better earnings for leveraged companies and reduction in risk-free rate, adds the note.

The Karachi Stock Exchange’s benchmark 100-share index opened with a gap of approximately 350 points to skip over 12,000 points for the first time in two months on Monday.

Profits of leveraged companies to jump 2-8%

Heavily leveraged companies from the cement, textile and fertiliser sectors – whose loans are floating and linked with Kibor – will have to bear lower interest charges from January 2012 following quarterly loan re-pricing in December, says the note.

These companies will be the major beneficiaries of the cut in discount rate, the fee commercial banks pay to borrow money from the SBP. DG Khan Cement, Engro and Pakistan State Oil will be some of the major gainers as their annualised earnings will increase by 7.8%, 6.5% and 2.1%, respectively, adds the research note.

Overall, the rate cut will augment earnings growth by 0.5% in 2012.

Riaz Haq said...

Here's the latest IMF assessment of Pak economy, as reported by The News:

ISLAMABAD: The International Monetary Fund (IMF) on Saturday said that Pakistan’s economy is braving serious challenges of an energy crisis and fast dwindling investment that is why it needs to ramp up efforts to carve out a long-term recipe to stimulate growth and reduce rising unemployment.

Pakistan’s economy is exposed to the worst effects of the floods and appalling security. The government has though undertaken many economic reforms, yet there are many serious challenges of energy crisis and dwindling investment.

Adnan Mazarei, Assistant Director of IMF for Middle East and Central Asia, after a seminar on “Revival of Pakistan Economy” stated this during a press briefing here on Saturday.

Mazarei expressed his dissatisfaction over the government’s performance in the energy sector and asked it to restructure the power sector to make it turn around. “The broadening of the tax base is also one of the biggest challenges the Pakistan economy is braving as the political consequences also negatively impact on the economy and people avoid paying taxes because they wanted an honest government and some dividends in return.”

He said that fiscal imbalances are also needed to be addressed. “Pakistan needs inclusive growth and employment generation as well as better distribution of resources and lowering of poverty rate to ensure equitable benefit to the people.”
Finance Minister Dr Abdul Hafeez Sheikh said that role of the government representative during the day-long seminar was to listen to the economists, business community and development partners and share with them the steps taken for the economic reforms in the country. He said the economic team held very constructive discussion with the IMF during Article IV discussion in Dubai on economic reforms and about way forward policy mix to move on to high growth path.

Hafeez Sheikh said that first four months of the current fiscal year were very positive with exports going over 6 billion dollar which were 23% more than the same period of previous year and remittances 4.2 billion dollars, 23% up by the same period of last year. The minister said the growth in taxes during the first four months was 28% with total collection of Rs509 billion compared to the same period of last year.

Riaz Haq said...

Here's a Businessweek report on IMF's assessment of Pakistan's economy:

Pakistan faces a “challenging” economic outlook and should seek to contain its deficit while adopting a cautious monetary policy, the International Monetary Fund said after an annual review of the country’s policies.

Economic growth is expected to reach about 3.5 percent for the fiscal year started July 1 and inflation is forecast to slow down, the Washington-based IMF said in a press release today.

Still, “the external current account balance is projected to return to a deficit, and global risk aversion and security concerns may limit capital inflows,” the IMF mission said. Beyond fiscal and monetary policies, “a responsive exchange rate would reduce vulnerabilities, contain inflation and protect Pakistan’s international reserve,” the fund said.

An $11.3 billion loan program to Pakistan expired in September with no payments disbursed since May 2010 because the country didn’t meet the conditions attached to it.

The IMF mission and Pakistani authorities, who met in Dubai and Islamabad Nov. 9-19, also discussed policies for the medium term, including changes to the tax system and in the energy sector.

A detailed report of Pakistan’s economy will be examined by the IMF board in late January, the mission said.

Riaz Haq said...

World Bank’s new estimates released on Thursday placed Pakistan among top 10 recipients of remittances among developing countries, fetching $12 billion this year, reports Dawn:

India leads with $58 billion followed by China at $57 billion, Mexico $24 billion and the Philippines $23 billion.

Bangladesh follows Pakistan with $12 billion, Nigeria 11 billion, Vietnam $9 billion and Egypt and Lebanon $8 billion each.

Remittance costs have fallen steadily from 8.8 per cent in 2008 to 7.3 per cent in the third quarter of 2011.

The ‘Outlook for Remittance Flow 2012-14’ shows that the officially recorded remittance flows to developing countries are estimated to have reached $351 billion in 2011, up 8 per cent over 2010.

Worldwide remittance flows, including those to high-income countries, reached $406 billion in 2011 and are expected to rise to $515 billion by 2014.

There are several sources of vulnerability to forecasts for remittances to developing countries.

The ongoing debt crisis in Europe and high unemployment rates in high-income OECD countries are adversely affecting economic and employment prospects of migrants.

These persistently high unemployment rates have created political pressures to reduce current levels of immigration.

There are risks that if the European crisis deepens, immigration controls in these countries could become even tighter.

This would affect remittance flows to all regions – especially to countries in Eastern Europe and Central Asia.

The World Bank report says that high oil prices, which have hovered over $100 a barrel in recent months, continue to provide a much-needed cushion for migrant employment in, and remittance flows from, the Gulf Cooperation Countries (GCC) and Russia. Oil driven economic activities and increased spending on infrastructure development are making these countries attractive for migrants from developing countries.

Remittances from the GCC countries to Bangladesh and Pakistan where the GCC countries account for 60 per cent or more of overall remittance inflows grew by 8 per cent and 31 per cent, respectively in the first three quarters of 2011 on a year-on-year basis.

The Pakistan Remittance Initiative (PRI), a joint initiative of the central bank and Pakistan’s government, has been working actively with commercial banks and money transfer operators to lower the cost of inward remittances and improve the payments systems and delivery channels in order to bring a larger share of remittances into formal channels.

The indigenisation programmes being considered or implemented in the GCC countries like the ‘Nitaqat’ programme in Saudi Arabia have raised concerns of adverse implications for future remittances to the Philippines, Pakistan, Bangladesh and other migrant-sending countries, it says.

Riaz Haq said...

Here's a Reuters report on increase in Pak forex reserves:

Pakistan’s foreign exchange reserves rose to $16.85 billion in the week ending Dec. 30, compared with $16.77 billion the previous week, the central bank said on Thursday.

Reserves held by the State Bank of Pakistan (SBP) were flat at $12.81 billion, unchanged from the previous week, while those held by commercial banks rose to $4.04 billion, compared with $3.96 billion the previous week.

Foreign exchange reserves hit a record $18.31 billion in the week ending July 30, but have since eased due to debt repayments.

Reserves were boosted in June last year by inflows of $411 million, including a $191.9 million loan from the World Bank, and a $196.8 million loan from the Asian Development Bank.

Higher export proceeds and a record inflow of remittances have also helped support Pakistan’s foreign exchange reserves.

According to official data, remittances rose 18.33 per cent to $5.24 billion in the first five months of the fiscal year (July-June), compared with $4.43 billion in the same period a year earlier.

However, they fell slightly to $923 million in November, compared with $926.89 million received in November last year.

Islamabad has to start repaying an $8 billion International Monetary Fund loan in early 2012. Without additional sources of revenue, that will put further pressure on Pakistan’s foreign exchange reserves.