The Power of Remittances
Remittances have proved to be the most important stabilizing variable for Pakistan’s economy recently. “The Power of Remittances” has been one of the key indicators showing considerable and sustainable progress in recent years. This year, Pakistan’s remittances are expected to reach $35 billion, a milestone that is already being celebrated. It is crucial to understand the effect these inflows have on the overall makeup of the economy.
Economic Impact
The nature of remittances is inherently ironic concerning the motives behind them. Academic research shows that in Pakistan’s case, these flows are based on both altruistic and opportunistic reasons, highlighting a complex dynamic. Altruistic motivations stem from family members abroad who send money to support their dependents in Pakistan. As a result, remittances surge during precarious economic situations. Over the past three years, we have witnessed a significant rise in remittances as the local economy faced turmoil.
Altruistic Motivations
“The Power of Remittances” is most pronounced in inflationary environments. Studies indicate that remittance flows increase during times of high inflation as expatriates strive to support their families back home. Without these inflows, it would have been challenging for households to sustain themselves in tough situations. Opportunistic motivations also play a critical role. When interest rates are high, remittances flow into government papers to take advantage of lucrative rates. These flows continue when the economy expands and sectors like real estate and the stock market become attractive to Pakistani expatriates.
Entrepreneurial Spirit
The success of the Roshan Digital Account (RDA) and its investment avenues like Roshan Car and Roshan Ghar exemplifies this. These robust and sticky flows provided significant support to the ailing economy. Thus, “The Power of Remittances” maintains its momentum in both good and bad times, which is immensely beneficial for a country like Pakistan.
Spillover Effects
Research literature highlights other important spillover effects of remittances on significant economic indicators. Remittances are a major source of poverty alleviation globally, and Pakistan is no exception. Households with breadwinners abroad quickly rise above the poverty line. Additionally, these flows have improved income inequality, although this relationship is U-shaped. Initially, remittances reduce inequality, but over time, they can increase it as households with local sources of income are at a disadvantage.
Host Economies
The economic cycles in major host economies play a crucial role in Pakistan’s case. The United States historically accounts for almost 20% of Pakistan’s remittances, which rise when the US economy and stock market perform well. Saudi Arabia and the United Arab Emirates, major sources of remittances, see increased flows when oil prices rise. As Saudi Arabia diversifies towards non-oil revenue sources, the impact on remittances may be slightly lower. However, the government has taken various steps to attract remittances through official channels now bearing fruit.
Government Measures
The increase in remittances through banking channels provides comfort for the balance of payments. One notable statistic is that while the Pakistani diaspora, comprising 10 million people, sends $35 billion in remittances, 250 million people in Pakistan manage to export goods and services worth only $39 billion. This highlights the significant contribution of Pakistanis abroad to the global economy and suggests that providing good opportunities locally could boost exports and GDP.
Conclusion
“The Power of Remittances” cannot be overstated. They provide crucial economic stability by supporting the balance of payments, reducing poverty, and improving income inequality. As Pakistan continues to harness this power, remittances will remain a cornerstone of its economic strategy.
