Remittances Continue to Surprise | Editorial

The record inflow of remittances – clocking in at more than $2 billion for more than 10 months now – has everybody very happy in Islamabad, especially the prime minister. That is why it was no surprise to see him take to Twitter and thank overseas Pakistanis for the part they’ve played in shoring up foreign exchange reserves at such a crucial time. Remember they have helped keep the deficit at arm’s length at a time when exports have stagnated and imports have increased, partly because the economy started to grow once again, and even played a central role, according to the central bank at least, in pushing the rupee up against the dollar at a time when the greenback is rising against most other currencies. Yet while the strengthening of the local currency can be attributed more to the hot money that our rather high interest rate is attracting, something that is called carry trade, there can be no denying about the huge favour this trend of remittances has done to national reserves.

The biggest surprise about all this is that it’s still not possible to say for sure just what is behind this welcome bulge in remittances. Initially people thought that since a lot of people were laid off across the world due to Covid, Pakistanis being no exception, perhaps a lot of them were sending their life-savings home ahead of their own arrivals. Others said it was because of financial innovations offered by the government to expatriate Pakistanis to invite them to invest in the local market. Yet others have said that the main reason for this could be that people are forced to send money home through proper banking channels, again partly because of the pandemic. Yet nobody can say for sure. Even the World Bank expressed surprise at it but expected it to fizzle out over the medium term.

The PM is naturally very happy about it because without the foreign exchange brought by these remittances it would not have been possible for the government to keep its nose above the water as fiscal pressures have mounted persistently, especially since the onset of the pandemic. It must now use this time to add value to our export basket, to make it more competitive, and increase the share of export earnings in overall earnings. With tax collection in the doldrums, and remittances likely to peter out sooner or later, the export machinery must emerge as the main vehicle to enhance the state’s revenue collection.


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