The Story of growing Remittances

By Asif Punjwani September 28th, 2012

If there is an economic news that officials do not mind repeating in every press release, that news is the growing remittance Pakistan has been enjoying lately, about $1.2 billion a month. I somehow get this feeling that Ministry of Finance is claiming credit for it and it proud of it. It took me a while to understand that these officials and their bosses actually do have alot to do with the growing remittances to Pakistan. International Growth Centre had a report out in June analyzing data on remittance. There were a lot of numbers and statistical jargon. Ill get straight to the meat of it along with SBPs remittance report. Heres the SBPs Remittance report breakdown

Pakistan receives about $1.2 billion/month in remittance Just over 15% comes from Europe Around 20% comes from North America A whopping 58% comes from the Middle East.

Now some interesting figures from the IGC report. Remember, these are mere estimates

Pakistan ranked #7th in top Emigration Country (i.e. Citizens leaving the country) Immigrant headcounts sending money to Pakistan grew from 4 million to about 8 million senders between 2004~2012 Between 2004~2009, North American migration did not increase. Most of the migration was to Middle East and Europe. Europes migration actually has turned negative since 2009 but Middle East remains positive. Average US remittance transaction amount is almost double ($790) to that of Middle East ($392~$505)

Now to make sense out of this - Most of the remittances comes from Pakistani bread earners providing cheap labor to Middle Eastern countries and sending money back home to support their families. These remittances arent primarily coming from affluent Pakistanis who have settled in the Western countries. The rise in remittance is primarily coming from more bread earners fleeing Pakistan to Middle Eastern countries providing those economies with cheap labor. They do not earn as much but the headcount makes up the chunk of their share.

So you see folks, Ministry of Finance is rightly taking credit for rising remittance. They have figured a way out to increase remittance... by raising inflation via deficit spending. They have figured out that if they make things in Pakistan so miserable these bread earners will start to leave Pakistan, but continue to send money back to their families. Ministry of Finance & SBP will get their hands on the foreign reserves, commercial banks will get a cut from the exchange rate spread and everyone wins! Ofcourse, everyone doesnt include the family of the bread earner. Thats Middle Easts problem now. Ofcourse, I possibly couldn't end this article without that famous quote Why dont they leave then? They did. They actually did leave and are now picking your tab of foreign trips and lavish imported cars. Let us all hope and pray that Mr Ex-PM doesnt get to leave when the time comes.

Asif Punjwani trades Equities, Bonds and derivatives in the International Capital Markets. He can be reached via Twitter @AsifAmeer_AP