There is no denying the fact that foreign remittances from expatriate Pakistanis sustain the sagging economy of the country and play an undeniably key role as a stable source of household income for millions of people. It is a matter of grave concern that the State Bank’s latest statistics point to a sharp decline in foreign remittances during the current year, which has been adversely affecting the country’s fiscal health. With the lifeline of the country’s economy shrinking, the draining out of foreign remittances has reinforced poverty, which, as defined by the World Bank, is “encompassing not only material deprivation (measured by an appropriate concept of income or consumption) but also low achievements in education and health”.
As the foreign exchange earnings are the main source for developing countries, the recent decline, reported by the SBP, the remittances of the country is continuously going in downward trend and touched $2.1 billion in November from $2.5bn during the same month last year. The inflows declined by 5pc compared to $2.215bn in October this year.
The availability of foreign exchange through remittances has not only helped the country in achieving a reasonably high economic growth by reducing the current account deficit, it has also reduced their external borrowing as well as external debt burden.
The policy makers designing strategies to overcome foreign exchange deficit claim that remittances have both long term and short term significant positive impact on economic growth in the country. There is, however, also an alternative view that remittances may have a negative impact on output in recipient economies but in the current scenario, Pakistan needs more and a vigorous flow of remittances. Theoretically an optimistic relationship exists between high exchange rate and financial development, which recommend that decline enhance economic development.
Pakistan mostly exports raw materials and cultivation based commodities, whereas import costly commodities similar to oil, mechanism and advanced goods. In the light of data, trade stability of Pakistan frequently remains less; we take gross domestic product as dependent variable even as independent variable foreign direct investment, foreign remittances, inflation and exchange rate.
For instance, the remittances in Pakistan decreased to 7685 USD million in the third quarter of 2022 from 8219 USD million in the second quarter of 2022. This period shows a severe political crisis in the country. All political parties of the country should joined hands for averting the looming clouds of financial instability. Unless measures are taken to preserve the remittance growth momentum cannot be restored. Bankers and currency dealers have been warning the government to take bold and creative measures as soon as possible for the political and financial stability of the country and step up its foreign investment inflow to improve investment and financial development.
One thing is obvious that the fall in foreign remittances is closely connected with political stability in the country. Hence, all political forces need put their heads together to figure a way out of the political instability which is proving detrimental to the economic growth of the country.
