1. Economy of Pakistan
FOREIGN REMITTANCES AND
THEIR IMPACT ON THE
ECONOMY OF PAKISTAN
Qudsia Jalal Roll No.12
Rida Khan Roll No.30
2. Remittances Defined:
A remittance is a transfer of money by a
foreign worker to an individual in his or her
home country. Money sent home by migrants
competes with international aid as some of the
largest financial inflows to developing
countries.
Asum of money sent in payment or as a gift
3. Significance Of Remittances:
According to World Bank estimates, remittances totaled US$ 414 billion in 2009, of which
US$ 316 billion went to developing countries that involved 192 million migrant workers.
2012: 550 Billion in the world where Pakistan’s share 14 Billion.
Top Two Nations in this regard are India(71B) and China(60B).
For some individual recipient countries, remittances can be as high as a third of their GDP.
As remittance receivers often have a higher propensity to own a bank account, remittances
promote access to financial services for the sender and recipient, an essential aspect of
leveraging remittances to promote economic development.
According to some social scientists, remittances have social significance that extends well
beyond the mere financial dimensions
The World Bank and the Bank for International Settlements have developed international
standards for remittance services.
4. Overview:
Several European countries, for example Spain, Italy and Ireland were
heavily dependent on remittances received from their emigrants during
the 19th and 20th centuries. In the case of Spain, remittances amounted to
the 21% of all of its current account income in 1946. All of those
countries created policies on remittances developed after significant
research efforts in the field. For instance, Italy was the first country in the
world to enact a law to protect remittances in 1901 while Spain was the
first country to sign an international treaty (with Argentina in 1960) to
lower the cost of the remittances received.
Since 2000, remittances have increased sharply worldwide, having almost
tripled to $529 billion in 2012. In 2012, migrants from India and China
alone sent more than $130 billion to their home countries.
5. Mode of Remittances:
Authorized Dealers should normally avoid issuing
drafts in cover of outward remittances whenever
remittance can be made by T.Ts, or M.Ts, etc. Where,
however, the normal means of transfer is likely to
result in unnecessary hardship or inconvenience to
the remitter, drafts may be issued in the name of the
beneficiaries of the remittance but such drafts
should be crossed by the issuing bank as "Account
Payee only".
6. Inward and Outward Remittances:
The term "inward remittance" means purchase of foreign currencies in
whatever form and includes not only remittances by draft, but also purchase of
travelers cheques, drafts under travelers letters of credit, bills of exchange,
currency notes and coin etc. Debit to bank‘s non-resident Rupee accounts also
constitutes an inward remittance.
The term "outward remittance" means sale of foreign exchange in any form
and includes not only remittances by T.Ts, M.Ts, drafts etc but also sale of
travelers cheques, travelers letters of credit, foreign currency notes and coin
etc. Outward remittance can be made either by sale of foreign exchange or by
credit to non-resident Rupee account of banks' overseas branches or
correspondents. Authorized Dealers may sell foreign exchange for approved
transactions
7. Remittances and Pakistan:
First influx towards UK and Western Europe in the late 50’s due to war.
Mostly unskilled and Manual Labour.
2nd influx in 1973 in the wake of Oil price shock. $107 Million in 1971-72
which was low keyed growth. 1982-83 peaked to $ 2886 Million i.e 9%
of GNP. Total Imports then were $5616 Million and thus exceeded the
merchandise exports of nearly $ 2672 Million.
2000-01: saw a declining trend in remittances with a migration trend.
Causes:
• Steep decline in Oil Prices.
• Competition from India and SK in Skilled labor and Bangladesh, Sri
Lanka in unskilled and semi skilled.
• The Trend was specially evident when it came to female labor force
8. Cont...
1998: Fall in Remittances due to confidence fall due to carrying out
of Nuclear Tests in May 1998.
2010-11: 11,200.97 Million with $890.42 Million in the month of
September and 924.92 Million in November.
2011-12: More than $13 Billion which was the highest for our
Nation in the history. $13,186.58 Million during the last fiscal year
that ended on June 30, 2012. Growth of 17.73 %.
$1 Billion in the last 10 months.
14. Reasons for Remittances:
Unemployment
Poverty
Attraction of Higher wages
Better amenities of life
Better education opportunities
Political Freedom
15. Advantages:
Budget Deficit Bridging
Trade Deficit
Foreign Reserves
Redistribution of income and wealth
Increase in consumption ( last ten years 62%)
Increase in Savings (16%)
Increase in Investment (20%)
Impact on BOP
Impact on GNP
Standard of Living improved
It should be mentioned here that remittances only prove a
temporary breathing space to economies under stress but their
continuation over time is never guaranteed.
16. Disadvantages:
Brain Drain: Professional and skilled people leave the
country causing loss in productivity.
Inflation
Demonstration effect
Failure in adjustment in new social system
Social and Psychological and Sexual Effects
17. Conclusion:
Foreign Remittances are important for a Nation.
They help to bridge the gap in BOP but this support
is not mostly transitory. An Economy can’t rely on
‘em solely as their continuation over time is not
guaranteed.
Conversely, some economists are of the view that
they are essential for the developing countries. In
some cases even more than official development
assistance. As in case of Pakistan where they are
even more than FDI.
18. Policy Implications:
By raising the level of education in the country.
Academic as well as skilled.
Investment in Human Capital
Training of Labour Force.
Removing of Economic Barriers.
Attitudinal Changes. Social and Psychological
improvement.
Political Changes and DiplomaticAttitude.
Terrorism.
Note: Labour Force Restrictions due to Health concerns.
