“Assignment”
Submitted to: Dr Asghar Ali
Submitted by: Hubaib Shahid & Sarah Lodh
Roll No : [EB22225006014 & EB2222500603]
Subject: Pakistan Economics
Topic : The Role Of Remittances In Pakistan’s Economy
Class: Bs Statistics [ 4th semester evening]
INTRODUCTION:
emittances refer to funds sent by migrants to their home country, typically to support family
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members. These financial transfers play a crucial role in improving living standards and
economic conditions in the recipients' homeland.
emittances play a crucial role in developing economies by providing a stable source of income,
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improving livelihoods, and contributing to poverty reduction. These funds often support basic
needs such as education, healthcare, and housing, fostering economic resilience and local
development.
tudying remittances in Pakistan is significant due to their substantial contribution to the
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country's economy. Remittances serve as a vital source of foreign exchange, helping to stabilize
the balance of payments and enhance economic growth. Understanding the patterns and
impacts of remittance flows is crucial for policymakers to formulate effective strategies for
sustainable development and financial stability. Additionally, remittances often play a key role in
poverty alleviation and improving the overall well-being of families in Pakistan.
CURRENT STATE OF REMITTANCES IN PAKISTAN:
akistan received $2.2 billion in remittances from its overseas workers in November 2023, a 4
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percent increase from the same month last year, but a 9 percent decrease from October 2023,
according to the latest data from the State Bank of Pakistan (SBP).
orkers’ remittances inflow of $11 billion has been recorded during the first five months
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(July-November) of FY24, a 10 percent decrease from the same period last year, the SBP data
showed.
he main sources of remittances in November were Saudi Arabia ($540.3 million), the UAE
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($409.4 million), the UK ($341.7 million) and the USA ($261.5 million).
he remittances data comes ahead of the IMF’s executive board meeting on January 11, 2024,
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where it will decide on the release of the next $700 million tranche from its $3 billion loan
programme to Pakistan. Pakistan received the first tranche of $1.2 billion in July 2023.
he IMF has projected that Pakistan’s remittances will decline by $3.5 billion to $29.377 billion
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in the current fiscal year ending on June 30, 2024, due to the adverse effects of the economic
downturn.
he IMF has also warned that Pakistan’s oil import bill will increase from $15.3 billion to $17.63
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billion in the same period, putting pressure on its foreign exchange reserves and balance of
payments.
ccording to the SBP, Pakistan’s forex reserves held by the central bank dropped by $237
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million to $7.020 billion as of December 1, 2023. The country’s total reserves have decreased
by $286 million to $12.107 billion. The SBP expects its reserves to reach $9 billion by the end of
the fiscal year
emittances play a crucial role in Pakistan’s economy, providing a much-needed inflow of
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dollars to boost foreign exchange reserves. At $19.3 billion, Pakistan ranks fifth in the world that
receives the most remittances every year.
akistan receives most of its remittances from the Gulf countries, but within the region, Saudi
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Arabia and the UAE stand out. According to the Pew Research Center, Saudi Arabia was the
leading source of remittance for Pakistan with $5.8 billion being remitted in 2016. Other leading
countries were the UAE ($5.7 billion), the UK ($1.7 billion), the US ($1.33 billion), Kuwait ($1
billion), Canada ($565 million), Singapore ($531 million) Qatar ($483 million), Oman ($403
million), Bahrain ($305 million), Spain ($251 million), Italy ($248 million), Germany ($193
million), Australia ($122 million) and Afghanistan ($119 million).
otable trends in remittance patterns include the increasing use of digital platforms for money
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transfers, a rise in remittances to low and middle-income countries, and the impact of global
events, such as the COVID-19 pandemic, affecting remittance flows. Additionally,
advancements in fintech are influencing how people send and receive remittances globally.\
INDICATORS:
emittances can have a positive impact on GDP growth for recipient countries. They contribute
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to household income, leading to increased consumption and, in turn, economic activity.
Additionally, remittances can provide a stable source of foreign exchange, helping to improve a
country's balance of payments. However, the extent of the impact varies depending on the size
of remittance inflows, the structure of the economy, and how effectively the funds are utilized.
emittances positively influence the balance of payments by providing a stable source of
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foreign exchange for recipient countries. The inflow of remittance funds contributes to the
current account, which includes trade balances. This can help offset trade deficits, contributing
to a more favorable balance of payments situation. The stability of remittances can be
particularly crucial for countries heavily reliant on them to meet external financial obligations and
sustain economic stability
emittances have a significant impact on a country's foreign exchange reserves. The inflow of
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remittance funds adds to the reserves, contributing to a more robust external position. Adequate
foreign exchange reserves provide a buffer against economic uncertainties, help stabilize the
local currency, and enable a country to meet its international financial obligations. However,
overdependence on remittances can also pose challenges if there's a sudden decline in inflows,
emphasizing the need for diversified economic strategies.
IMPLICATIONS:
emittances play a vital role in poverty alleviation by directly contributing to the income of
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recipient households. Families receiving remittances often use the funds to cover basic needs
like food, education, and healthcare. This injection of capital enhances the standard of living,
reduces financial vulnerability, and can lead to long-term poverty reduction. Moreover,
remittances can support local businesses and stimulate economic activities in the receiving
communities, further contributing to poverty alleviation.
emittances contribute significantly to improving access to education and healthcare. In many
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cases, families receiving remittances allocate a portion of the funds to cover educational
expenses, such as school fees, books, and uniforms. This can enhance educational
opportunities and outcomes for the recipients.
imilarly, remittances often play a crucial role in providing better healthcare access. Families
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may use the funds to cover medical expenses, purchase health insurance, or access improved
healthcare facilities. As a result, remittances indirectly contribute to enhancing the overall
well-being and human capital development in recipient communities.
CHALLENGES AND RISKS:
emittances have risen spectacularly in absolute terms and in relation to traditional sources of
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foreign exchange, such as export revenues. Remittances can improve the well-being of family
members left behind and boost growth rates of receiving economies. They can also create a
culture of dependency, lowering labor force participation in recipient nations, promoting
conspicuous consumption, and accelerating environmental degradation
Economic Vulnerability: Countries heavily dependenton remittances are vulnerable to
fluctuations in global economic conditions, impacting the income of migrant workers and,
consequently, remittance flows.
urrency Appreciation: Large remittance inflows canlead to local currency appreciation,
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negatively affecting export competitiveness and potentially harming other sectors of the
economy.
Inequality: While remittances alleviate poverty forsome, they might exacerbate inequality if the
funds are unevenly distributed within the recipient country or if certain regions benefit more than
others.
ependence on Migrant Labor: Heavy reliance on remittances may discourage domestic
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economic development, leading to a dependence on migrant labor as a primary source of
income.
amily Disruption: Migration for employment can resultin family separation, impacting social
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structures and potentially causing emotional and social challenges for families left behind.
Lack of Diversification: Over Reliance on remittances may discourage efforts to diversify the
economy, making countries susceptible to economic shocks in the long run.
Risk of Macroeconomic Imbalances: Sudden changes inremittance flows can lead to
macroeconomic imbalances, affecting fiscal and monetary policies in the recipient country.
conomic Vulnerabilities: Heavy reliance on remittancesmakes a country susceptible to
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economic downturns in host countries, affecting the income of migrant workers and
subsequently reducing remittance inflows.
Foreign Exchange Rate Risks: Fluctuations in exchange rates can impact the value of
remittances, affecting the purchasing power of recipients and potentially contributing to
economic instability.
ependency Syndrome: Relying heavily on remittancesmay lead to a "dependency
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syndrome," where the country becomes overly dependent on external sources of income,
hindering efforts for domestic economic development.
Macroeconomic Imbalances: Sudden changes in remittance flows can disrupt macroeconomic
stability, impacting factors like the balance of payments, fiscal policies, and overall economic
performance.
ocial Impact: Over Reliance on remittances mightresult in social challenges, such as family
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disruption due to migration, and may hinder the development of local industries and job
opportunities.
ase of Transactions:Governments may implement measuresto streamline the process of
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sending and receiving remittances, encouraging the use of formal channels.
Financial Inclusion: Policies may aim to enhance financial inclusion by promoting the use of
banking and digital channels for remittance transactions.
Regulation and Monitoring: Governments may have regulations in place to monitor remittance
service providers, ensuring compliance with anti-money laundering (AML) and counter-terrorist
financing (CTF) measures.
Incentives:Some countries provide incentives, suchas tax breaks or reduced fees, to
encourage the use of formal remittance channels.
Financial Education: Policies may include initiatives to educate recipients about financial
management and investment options to maximize the positive impact of remittances.
For the latest and most accurate information on policies related to remittances in Pakistan, I
recommend checking with official government sources or relevant financial authorities.
POLICIES CONSIDERATION:
EFP Economic Council Policy Recommendations
.In light of a devalued currency, impose a zero-dutyon the import of "long-run price- elastic"
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raw materials. Also impose a very high duty on import of luxury items and allow for a
simultaneous "controlled anti-dumping policy" to maintain quality of imports.
. In order to divert investment into and reap maximumbenefits of potent sectors, the
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Government of Pakistan (GoP) is advised to apply a "time-constraint” on provision of subsidies,
as well as adopt a targeted subsidizing approach.
. In order to mitigate the power crisis in the industrialsectors, the GoP is advised, instead of
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lowering high energy tariffs, rightly channel financial and entrepreneurial resources towards the
use of energy supply mix option.
.While ensuring a transparent flow of informationbetween government and private sector, the
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GoP is advised to mimic the German Mittelstand (GM) Trade and Industry model to encourage
entrepreneurship in the small and medium enterprise sector.
5. The GoP is advised to impose stringent regulationson Statutory Regulatory Orders to
prevent the loss of billions of Rupees in tax revenue.
. Pakistan's poor Human Capital Index demands anincrease in budget allocation towards
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upgrading of the healthcare system that represented only 1% of the GDP in FY18.
.The GoP is highly advised to take note of the highgender wage differential and low
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participation of women in the formal sector, and hence introduce new reforms on the social
inclusion, and safeguarding of rights of women.
. To improve the macroeconomic stability of the agriculturalsector, the GoP is advised to curtail
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the continued support for import policies to oil seeds, and instead extend the hybrid seeds
program of Canola to other oilseeds
. The GoP is strongly advised to aggressively pursueAgro Processing, as this will not only
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increase the value of agricultural exports in terms of scale and output, but also diversify the
offering to the international market
0. The GoP is requested to take note of the persistentlylow value addition in the Textile
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Industry, and the low level of diversification. One of the reasons is lack of investment in human
capital, and the other is the abuse of scarce water resources and fertilizers that have diminished
the quality of cotton bales.
1.The Government of Pakistan should consider the need to upscale joint ventures with foreign
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manufacturers, such as U.S. Food and Auto companies, to create wealth..
[3:31 pm, 10/01/2024] Hubaib Ansari: 12. The GoP is advised to shift focus from market seeking
to efficiency driven foreign direct investments to allow for optimum exploitation of natural
resources and increasing competitiveness of exports.
2. The GoP is advised to shift focus from marketseeking to efficiency driven foreign direct
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investments to allow for optimum exploitation of natural resources and increasing
competitiveness of exports.
3. To curb money laundering, the GoP is advised toconsider limiting the freedom of currency
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convertibility, which has granted foreign players restriction-free access to local markets, and
hence, allowed for the easy movement of investment capital, and inflow of dividends.
4. Pakistan faces severe Non-Tariff Measures (NTM)by developed countries, which often
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violate World Trade Organization (WTO) rules. While taking note of child labor abuse, the GoP
is advised to adopt the NTM laws practiced by the Japan Ministry of Health, Labor, and Welfare
(MHLW).
Practical suggestions for leveraging remittances to enhance economic
development in Pakistan:
Financial Education Programs:
● Implement financial education programs to educate recipients about effective
financial management, investment options, and entrepreneurship.
● Encourage the use of formal banking and digital channels for remittance
transactions.
Diversification of Economic Activities:
● Develop policies that promote economic diversification to reduce dependence on
remittances.
● Encourage the growth of industries beyond the traditional sectors, fostering
domestic economic development.
Support for Small and Medium Enterprises (SMEs):
● Provide targeted financial support and incentives for the establishment and
growth of SMEs.
● Facilitate access to credit and resources for aspiring entrepreneurs, aligning with
the German Mittelstand model.
Investment in Human Capital:
● Increase budget allocations for upgrading the healthcare and education systems
to improve the Human Capital Index.
● Foster initiatives that enhance skills and knowledge, making the workforce more
competitive.
Gender Inclusion and Empowerment:
● Implement reforms to address gender wage differentials and promote the
participation of women in the formal sector.
● Develop policies to ensure social inclusion and safeguard the rights of women in
the workforce.
Promotion of Agro Processing:
● Aggressively pursue agro-processing initiatives to increase the value of
agricultural exports.
● Diversify offerings in the international market by expanding the agro-processing
sector.
Efficiency-Driven Foreign Direct Investments (FDI):
● Shift focus from market-seeking to efficiency-driven FDI to optimize the
exploitation of natural resources.
● Attract foreign investments that contribute to increasing competitiveness and
export capabilities.
Addressing Non-Tariff Measures (NTMs):
● Work towards resolving Non-Tariff Measures faced by Pakistani exports in
developed countries.
● Align with internationally recognized standards to ensure compliance with WTO
rules and address concerns such as child labor abuse.
Anti-Money Laundering Measures:
● Strengthen regulations related to currency convertibility to curb money
laundering.
● Limit freedom of currency convertibility to prevent unrestricted access by foreign
players and control the movement of investment capital.
Infrastructure Development:
● Invest in infrastructure development projects that can stimulate economic
activities and create job opportunities.
● Improve transportation, energy, and communication infrastructure to facilitate
business growth.
Incentives for Value Addition in Industries:
● Provide incentives for industries to focus on value addition, improving product
quality and competitiveness.
● Encourage research and development to enhance innovation in manufacturing
processes.
Strategic Partnerships with Foreign Manufacturers:
● Explore joint ventures with foreign manufacturers, particularly in sectors such as
food and automotive.
● Foster collaborations that create wealth, transfer technology, and contribute to
the growth of the industrial sector.
CONCLUSION:
● In November 2023, Pakistan received $2.2 billion in remittances, showing a 4%
increase from the previous year but a 9% decrease from October 2023.
● The top sources of remittances were Saudi Arabia, the UAE, the UK, and the USA.
● The State Bank of Pakistan (SBP) reported a 10% decrease in remittances,
totaling $11 billion in the first five months of FY24.
● The IMF projects a decline in Pakistan's remittances by $3.5 billion in the current
fiscal year, attributing it to economic downturn.
Indicators of Remittances:
● Remittances positively impact GDP growth by contributing to household income,
leading to increased consumption and economic activity.
● They contribute to a stable source of foreign exchange, improving a country's
balance of payments.
● Remittances significantly influence a country's foreign exchange reserves,
providing a buffer against economic uncertainties.
Implications of Remittances:
● Remittances play a crucial role in poverty alleviation by directly contributing to
recipient households' income.
● They contribute to improving access to education and healthcare, enhancing
overall well-being and human capital development.
● Remittances stimulate economic activities in receiving communities, further
contributing to poverty alleviation.
Challenges and Risks:
● Economic vulnerability due to dependence on remittances.
● Currency appreciation affecting export competitiveness.
● Inequality if remittance funds are unevenly distributed.
● Dependence on migrant labor hindering domestic economic development.
● Family disruption and social challenges due to migration.
Policies Consideration:
● Recommendations include imposing zero-duty on specific imports, targeted
subsidizing, addressing the power crisis, and adopting a transparent flow of
information between government and the private sector.
● Emphasis on healthcare system upgrades, gender wage differentials, and social
inclusion reforms.
● Agricultural sector improvements through policy changes in import support and
agro-processing.
● Addressing low value addition in the textile industry and promoting joint ventures
for wealth creation.
Key Recommendations for Economic Policy:
● F ocus on efficiency-driven foreign direct investments for optimal resource
exploitation.
● Consider restrictions on currency convertibility to curb money laundering.
● Address Non-Tariff Measures (NTM) and child labor issues in line with WTO
rules.
Overall, while remittances play a crucial role in Pakistan's economy, there are challenges and
risks that require strategic economic policies for sustainable development. The
recommendations provided cover a range of sectors to address these challenges and enhance
the positive impact of remittances on the country's economic landscape.
