Monday, April 24, 2017

Pakistani Diaspora Bucks Global Trend With 2.8% Higher Remittances in 2016

Pakistani diaspora bucked the 2016 global decline in remittances with a modest 2.8% increase over 2015, according to a recently released World Bank report. An estimated $19.8 billion remitted to Pakistan amounted to 6.9% of the country's GDP. This is a welcome relief coming on the heels of the State Bank of Pakistan report indicating the country's current account deficit widened to $6.13 billion or 2.6% of GDP in the first 9 months of fiscal 2017.

2016 Remittances to South Asia. Source: World Bank

Global Decline:

Meanwhile, global remittance flows to developing countries registered a decline for two successive years, said the report.  Remittances declined by an estimated 2.4 percent, to $429 billion, in 2016, after a decline of 1 percent in 2015. India, the largest remittance-receiving country worldwide, led the fall with a decrease of 8.9 percent in remittance inflows.

South Asia Region:

Remittances to India declined by 8.9 percent in 2016, to $62.7 billion, ranking the country as the top recipient of such inflows.  In Bangladesh, remittances declined by an estimated 11.1 percent in 2016. In Pakistan, the 12 percent growth witnessed in 2015 moderated to an estimated 2.8 percent in 2016. Nepal experienced unusually high growth in remittances, at 14.3 percent in 2015, due to emigrants sending financial assistance after the earthquake. In 2016, remittance flows to Nepal declined by an estimated 6.7 percent from the previous year’s high level. In Sri Lanka, remittance growth was estimated at 3.9 percent in 2016.

Next Year Forecast:

The World Bank says the remittance growth in the region is projected to remain muted, because of low growth and fiscal consolidation in GCC countries with low energy prices. An increase of only 2.0 percent is expected in 2017. Bangladesh’s remittance growth in 2017 is forecast at 2.4 percent, India’s at 1.9 percent, Pakistan’s at 1.4 percent, and Sri Lanka’s at 1.3 percent.


World Bank report says Pakistani diaspora bucked the 2016 global decline in remittances with a modest 2.8% increase over 2015. An estimated $19.8 billion remitted to Pakistan amounted to 6.9% of the country's GDP. This is a welcome relief coming on the heels of the State Bank of Pakistan report indicating the country's current account deficit widened to $6.13 billion or 2.6% of GDP in the first 9 months of fiscal 2017. Future growth in remittances is likely to remain muted. Slowing growth in such inflows will further increase pressure on Pakistan to work on enhancing exports and attracting more foreign direct investment.

Related Links:

Haq's Musings


Pakistan Remittances Rise Amid Falling Oil Prices

Pakistani Diaspora Among World's Largest

China-Pakistan Economic Corridor (CPEC) to Add 2 Million Jobs

ADB Raises Pakistan GDP Growth Forecast

Gwadar as Hong Kong West

China-Pakistan Industrial Corridor


Amjad M. said...

Is this my imagination or these figures are for South Asia only?

There are many other countries with foreign remittances like Mexico, Philippines and China

Riaz Haq said...

Amjad: " Is this my imagination or these figures are for South Asia only? There are many other countries with foreign remittances like Mexico, Philippines and China"

My post focuses mainly on South Asia.

Globally, India is the biggest recipient of remittances followed by China (2) , Philippines(3) , Mexico(4) and Pakistan (5).

Majumdar said...

With 46 bn dough coming in from chaptas why are you bothered about small things like CAD, remittances etc


Riaz Haq said...

China bails out Pakistan with over $1bn in loans

Rising imports and falling exports and remittances pose threat of new forex crisis

China has provided Pakistan with over $1bn in bailout loans since June last year, as the south Asian country looks to stave off a foreign currency crisis that could yet lead to another multinational rescue package. 

State-backed Chinese banks have come to Pakistan’s rescue on two separate occasions, officials have told the Financial Times, with $900m coming in 2016, followed by another $300m in the first three months of this year.

The loans demonstrate the perilous fragility of Pakistan’s stocks of foreign currency, which have been depleted in the past few months as imports have risen while both exports and inbound remittances from Pakistanis abroad have fallen. 

China’s financial help also underlines the increasingly close, if complex, relationship between the two Asian neighbours. 

In 2013, Pakistan secured a $6.6bn loan from the International Monetary Fund after being faced with a similar balance of payments crisis. In the same year, it quietly took advantage of a currency swap line with the People’s Bank of China, the central bank, to shore up its reserves. 

Islamabad made the final repayment on the IMF loan last year, prompting optimism from policymakers in Pakistan and abroad that the country was finally on the path to economic stability. Christine Lagarde, the head of the IMF, called it a “moment of opportunity” for the country.

In recent months however, the country’s trade deficit has widened, depleting its foreign reserves once more.

Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago. A burgeoning trade deficit with China — which has doubled in recent years, according to data from the Pakistan Business Council — is a big part of the problem.

This has forced the country to seek emergency loans from outside sources to keep being able to repay older loans made in foreign currencies.

Of the $1.2bn from the Chinese institutions, $600m came from the government-run China Development Bank and another $600m from the state-owned Industrial and Commercial Bank of China, the only mainland bank to have a branch in Pakistan. Policy banks such as CDB often act on behalf of the central bank. 

One Pakistani official said: “China keeps a very close eye on our economic trends and they're happy to come to our help wherever needed.”

The recent deterioration is expected to continue, however, with China’s investment plans prompting a surge of imports from that country. As a result, experts are now warning Pakistan is likely to have to return to international institutions such as the IMF for further support. 

“Technically speaking we should have gone back to the IMF in January, but ministers are likely to try and wait until after the election [which is planned for 2018],” said Vaqar Ahmed, deputy executive director of the Islamabad-based Sustainable Development Policy Institute. 

One member of the ruling PML-N party confirmed to the Financial Times that ministers were loath to return to the IMF until after the election in an effort to limit the political fallout.

“The IMF is a politically volatile issue in our country. If we go to the IMF to deal with our needs, that will send a very negative political signal and the opposition [parties] will use that against the government,” the person said.

Ahmed F. said...

Not good. Why did it come to this?

Riaz Haq said...

Ahmad: "Not good. Why did it come to this?"

It was generally expected that Pakistan's imports would significantly rise with progress on CPEC projects. What was not expected is the huge drop in exports.

In fact, the Pakistan government set an ambitious $35 billion exports target for current year, up from $24 billion last year.

In reality, Pakistan's exports have tumbled to $15 billion in the first 9 months due to softness in export markets and increased competition from cheaper garment exports from Bangladesh.

Pakistan needs to diversify its exports from textiles and garments to more higher value goods to remain competitive. Hopefully, with Chinese labor getting relatively more expensive, Pakistan will get FDI from China to build some more products in CPEC export zones being set up in Pakistan.

Meanwhile, Pakistan will need to be bailed out by the Chinese to maintain its dollar reserves at a reasonable level with growing imports.

Riaz Haq said...

#Pakistan to set up #infrastructure bank with $1 billion capital to finance private sector development. #IMF #IFC

Finance Minister Ishaq Dar has announced that the government will set up Pakistan Infrastructure Bank with a paid-up capital of $1 billion, which will give financing to private investors for development projects.

Pakistan government and the International Monetary Fund (IMF) would have 20% shares each in the bank and the rest would be held by global organisations such as the International Finance Corporation, he said.

AJK plans tourism corridor along CPEC
He was speaking at a briefing held for the Pakistani media towards the end of his visit to Washington DC during which he attended spring meetings of the IMF and the World Bank.

Dar also revealed that the government would soon be launching Pakistan Development Fund (PDF) and its shares worth Rs100 billion would be offered to Pakistani diaspora in order to channelise their remittances effectively.

Later, these shares will be listed on the Pakistan Stock Exchange. “After the success of Sukuk (Islamic bonds), the PDF will be another attractive investment for overseas Pakistanis,” he remarked.

Giving a detailed round-up on the plenary sessions with the IMF and World Bank, the minister said there was positive sentiment about the tremendous economic rebound experienced by Pakistan over the last four years.

“Pakistan was on the verge of bankruptcy in 2014 and today it is likely to achieve approximately 5% growth during the current financial year,” he said. “Both IMF and World Bank are on the same page with the Pakistani government in these projections.”

Promotion of it: Work on innovation centres begins

Global credit rating agencies have upgraded the rating of Pakistan from negative to stable and from stable to positive in the last four years to an extent that the country is likely to be included in G-20 countries by 2030.

nayyer ali said...

5% growth is decent, but at Pakistan's level of development it should be doing 7-8%. I think we will get a clearer picture of the society and economy once the census is completed, and next year GDP should be rebased for the first time in about 15 years. I would not be surprised if rebasing shows the GDP is 20% larger than currently reported. Given the facts on the ground (rising consumption and stock prices and corporate profits), I think GDP growth has been running faster than the current statistics are showing.

Anonymous said...

Pakistan being an agricultural based economy can't expect to have high GDP growth.
Manufacturing based economies like china and services based economies like Singapore can expect high GDP growth.

Pakistan needs to focus on manufacturing as for services companies won't invest due to prevailing security scenario.

Riaz Haq said...

Anon: "Pakistan being an agricultural based economy can't expect to have high GDP growth.
Manufacturing based economies like china and services based economies like Singapore can expect high GDP growth."

Agriculture output in Pakistan accounts for only 20% of GDP while services account for 55% and manufacturing 25%.

The problem is that Pakistan, like many other countries, does not accurately account for output and growth in service and manufacturing sectors.

Here's found State Bank of Pakistan reported about inadequacy of measuring manufacturing output:

"In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM." State Bank of Pakistan Annual Report 2014

More recently, economist Shahid Javed Burki said some of the methods that Pakistan was using and the surveys that collected required data were seriously outdated. Pakistan was also not correctly estimating the size of its modern services – in particular information, communications, entertainment, travel and advanced commerce. All these sectors contribute much more to the economy than suggested by official numbers, he wrote.

Riaz Haq said...

Excerpt from State Bank of Pakistan Report 1H/2017

Preliminary data on crops indicates that agriculture growth will rebound in FY17.
The production of major kharif crops, including cotton, sugarcane, and maize is
estimated to increase significantly this year. The output of major rabi crop, i.e.,
wheat is also expected to remain close to the last year’s bumper crop of 25.4
million tons on the back of timely and widespread rains.
Besides improved
water situation (from January 2017 onwards), an increase in fertilizer off take (33
percent higher), and higher credit disbursement (up 32 percent) during Rabi
season also point to a better performance of the crops subsector.
Encouragingly, LSM growth has picked up momentum in Q2-FY17 (rising by 5.8
percent YoY). This partly compensated the sluggish Q1-FY17 growth of 2.1
percent. As a result, the cumulative growth during H1-FY17 increased to 3.9
percent, same as the last year. The major contribution to LSM growth during H1-
FY17 came from food, steel, cement and pharmaceutical industries.

These industries largely benefited from accommodative monetary and fiscal
policies; improved energy supplies; better availability of raw materials (e.g.,
sugarcane); rising domestic demand (particularly for cement and steel, owing to
ongoing CPEC-related power and infrastructure projects); and clarity on drug
pricing mechanism. In addition, the recently announced export package would
also provide much needed support to export industries, especially textile – the
historical mainstay of LSM growth.
On the other hand, the available information on services sector indicators points
to a mixed performance. Healthy trends in transport (given the surge in sales of
trucks, buses, and POL products); increased (external) trade volumes along with
better output of agriculture and industry (having positive spillover for wholesale
and retail trade); significant increase in bank credit; and a rise in 3G/4G
subscription base (27 percent) during H1-FY17, all indicate towards an uptick in
the services sector’s performance. At the same time, losses of Public Sector
Enterprises (PSEs), and a decrease in banks’ profitability, act as potential drags.
On balance, however, the services sector is expected to keep up last year’s growth
momentum (see Chapter 2 for details).
Meanwhile, ongoing investments in energy and infrastructure sectors (and strong
transport sector activity) resulted in a sharp increase in import demand, especially
for capital goods and raw materials. Led by higher imports of machinery (power
and construction) and petroleum (including LNG), the total import bill grew by
6.0 percent during H1-FY17, compared to 8.9 percent decline in the
corresponding period last year.8

This surge in imports was partly a result of rising commodity prices, especially
crude and palm oil. This, combined with the non-receipt of CSF in H1-FY17 and
decline in exports and remittances, resulted in the almost doubling of the current
account deficit to US$ 3.5 billion during first half of the year. (Here, it is worth
mentioning that the receipt of CSF in Q3-FY17, and recently announced package
for exports may help balance of payments going forward.)
Encouragingly, available financial inflows were more than sufficient to finance
the higher current account deficit. Major foreign exchange inflows included US$
1 billion from a Sukuk and net loans of US$ 1.4 billion (including US$ 900
million of commercial borrowings). In addition, net FDI increased by 10.5
percent to US$ 1.1 billion during H1-FY17, from US$ 978 million last year.

Riaz Haq said...

#UN survey sees higher GDP growth for #Pakistan from 5.2% in FY17 to 5.4% in FY18. #UNESCAP

The economic growth outlook for Pakistan is projected to trend up to 5.2 to 5.4 per cent in both 2017 and 2018, forecasts the latest Economic and Social Survey of Asia and the Pacific 2017.
Private consumption and public investment would drive the economy, supported by higher consumer credits, improved security conditions and ongoing infrastructure projects under the China-Pakistan Economic Corridor (CPEC), says the survey which focused on ‘Governance and Fiscal Management’.

Increased capital inflows from China to finance projects under CPEC have helped generate foreign exchange receipts, although imports of transport and construction-related items also increased, the survey by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) notes.

The survey says that private investment was stronger in Pakistan as CPEC helped attract more foreign investment.

On the supply side, the large-scale manufacturing sector should benefit from greater energy security and a notable cut in gas prices for industrial use. Similarly, the agricultural sector is likely to improve, with expanded production of cotton, sugarcane and maize, the survey notes.

Meanwhile, a rebound in global oil prices and an upward adjustment in domestic petrol prices would push up inflation during the fiscal year 2017-18 from 5pc to 5.5pc, which is still within the official target of 6pc.

Riaz Haq said...

#Remittances from #diaspora keep #Pakistan's economy afloat. Estimates average from $1.7 to $1.9 billion a month, adding up to $22 billion per year. #IMF #Reserves #bailout #exports #trade #imports

Pakistan's economic lifeline is its remittances. A staggering $2billion from overseas Pakistanis per month on an average is a blessing in disguise for the cash-starved economy and has widely helped in balancing payments towards imports, especially oil. They have acted as a catalyst in growth and investments. Undisputedly, it is one of the primary sources of foreign exchange reserves for the country and for an economy, which is ridden with inflation and slump in exports, the annual subscription of more than $25 billion acts as its backbone.

The good point is that despite somersaults on the global economic level and a nosedive, Pakistanis have stood fast in retaining their culture of remitting back home, and have widely entrusted the country's banks and other legal avenues for transfer of funds. Despite a wide gap in the dollar rates in open and banking markets, overseas Pakistanis preferred to send money mostly through the banking channel. This reflects their confidence in the government, as well as banks operating in Pakistan. The State Bank of Pakistan, in one of its recent reports, said that Pakistan has fared relatively better than other regional countries concerning foreign remittances.

Estimates say an average of $1.7 to $1.9 billion is received on a monthly basis, which accounts for a staggering $22 billion per annum. Most of the remittances are from the Middle East and Gulf countries, especially Saudi Arabia, the UAE, and Oman. Payments from all important destinations, except Saudi Arabia, showed positive growth. Inflows from the kingdom declined 7.5 per cent during the last fiscal year to the tune of 5.5 per cent. Nonetheless, Pakistan received $2.5 billion from Saudi Arabia in the year 2017. The second highest inflow is from the United Arab Emirates, which increased 1.13 per cent to $2.2bn.

A silent but sizeable chunk of remittances, although on a quarterly and six-monthly basis, are also registered from the United States, the European Union, South Africa and Australia. Many of the Far East Asian countries, especially Malaysia and Hong Kong, Korea and Japan also are potential remittances pockets. Remittances from the US have also seen an upward trend by around 10 per cent, to cross the barrier of one billion dollars per quarter. Similarly, inflows from the UK also recorded an increase of 23 per cent to $1.35 billion.

This primarily acts as seed money for the country's balance of payments, and to a great extent compensates for lack of foreign investment and slowdown in portfolio investments. The pre-budget Economic Review, however, estimated that remittances could grow by 50 per cent if the government provides due incentives to its non-resident citizens, and ensures that their foreign exchange is safe and reusable in the same currency. Likewise, remittances directly deposited in Pakistani bank accounts can also get a boost and shoot up to $100 billion - a retained safe territory, if stringent measures are taken and assurances on withdrawals limits are waived.

The free flow of foreign currency in the form of remittances can lift the economy to new heights. Pakistani foreign currency accounts maintained abroad are in billions of dollars, and a submission in the Senate of Pakistan said that they account for around $800 billion. That money sooner than later should be in the mainstream of Pakistan economy, provided anti-money laundering policies get thumbs up.