Mohiuddin Aazim

BANGLADESH outperformed Pakistan in FY09 in attracting remittances from overseas citizens. The Pakistanis working abroad sent back home $7.8 billion and overseas Bangladeshis repatriated $9.68 billion in the last fiscal year.

And this is for the fourth straight year that Pakistan lagged behind Bangladesh in the race for home remittances (See Chart).

Since 9/11, Pakistan's home remittances have shown a consistent growth. And the country has received $39 billion of these remittances in the last eight fiscal years-an average of slightly below five billion dollars per year. Prior to 9/11, Pakistan used to receive about a billion dollar a year in home remittances. So, a five-fold increase in average yearly inflows has more to do with the policies followed by the West after 9/11 rather than Pakistan's own efforts to attract higher remittances.

In the wake of the September 11, 2001 terror attacks on New York's Twin Towers, the US and other Western countries increased vigilance over bank accounts of Afghan and Pakistani nationals. This made overseas Pakistanis insecure there and they started repatriating more of their foreign exchange earnings back home. This was not the case with Bangladeshis working abroad -and this is still not the case. So what exactly has made it possible for Bangladesh to receive higher inflows of home remittances than Pakistan's?

There are quite a few answers to it:

First, overseas Bangladeshis are less inclined towards building assets in the host countries than their Pakistani counterparts; second, Bangladesh has been more successful in checking remittances' inflow through unofficial channels and third, Bangladeshi government has facilitated its overseas citizens to run tailor-made profitable businesses and invest in exclusively-designed schemes.

Emboldened by rapid growth in remittances in the past few years, Bangladesh has come up with an ambitious plan to enhance them to $30 billion per year by 2015. And the country has produced at least two very valuable research-cum-policy documents to achieve this goal.

In June 2007, the central bank of Bangladesh produced a study titled Determinants of Workers' Remittances. The study found, among other things, that "the lower the income of remittance-receiving country relative to sending country, the higher is the flow of workers remittances. In other words, flow of remittances tends to increase when home country income is relatively low."

Making this finding the basis of the argument that low-income Bangladesh should be a natural recipient of larger home remittances, Bangladesh policy-makers brainstormed on how to make this happen. In September 2007, Bangladesh Enterprise Institute conducted a study on how to help the country achieve $30 billion annual remittances by 2015. The study conducted under the patronage of Danish International Development Assistance of Denmark, undertook a candid national soul-searching and remarked: "The most prominent among them [the causes of low inflow of remittances] are administrative and financial irregularities of the Government Ministries and Departments, lack of coordination among them, absence of strong drive and initiative of the relevant Government agencies to explore new avenues of employment, inadequate knowledge and technology to manage the valuable remittances received from the migrant workers, unfavourable investment climate in the country and the poor image of the country abroad." And then it made practical recommendations on raising remittances to $30 billion by 2015.

Pakistan needs a similar soul-searching and then set a realistic yet high target for home remittances. And this needs to be done jointly by the government and the central bank. The outcome of the study should serve as a basis for formulating the first five-year National Remittances Policy.

There are many critical issues related to Pakistan's home remittances. Some of them need to be addressed urgently:

Overall ownership: There is a need to create an institution that can be entrusted with the responsibility of framing remittances policies and implementing them. It is encouraging to learn that the State Bank of Pakistan (SBP) is going to set up a dedicated remittances department that would work in collaboration with the Ministry of Finance and the Ministry of Overseas Pakistanis. But it should be ensured that the representations of the two ministries do not become customary.

Remittances policy: The proposed department should serve as a focal point for formulating five-year remittances policies with well spelled-out yearly targets. But the overall ownership of these policies should rest with a powerful national institution with representation from the Senate, federal and provincial assemblies, relevant federal ministries and provincial government departments, state-run institutions and armed forces, judiciary and media.

Broader questions: In order to enhance remittances, Pakistan must answer a broader question: why on earth an overseas Pakistani should send larger amounts of foreign exchange back home?

They must face realities: A large number of wealthy Pakistanis, whether living in the country or abroad, do not want their next generations to live in Pakistan. Thus, it is but natural for overseas Pakistanis to save and invest in their host countries so that they can relocate their families there, ensuring a safe and prosperous future for their kids. Secondly, Pakistan does not offer an investment environment wherein its migrant citizens should feel confident to make long-term investment. In the face of these realities, overseas Pakistanis send foreign exchange back home only to cover expenses of their families or relatives or to make investment in high-risk, high-yielding and often speculative areas of investment like stock market and real estate. There are examples of some overseas Pakistanis making investment in other areas as well but that does not represent the trend.

Analyse remittances market, trends and potential: Before Pakistan sets any plan to enhance remittances, it should analyse the world remittances market, what are the jobs that are in demand, what are the destinations where overseas Pakistanis can earn enough foreign exchange and what changes Pakistan needs to make in its education and skill-development plans to become a better exporter of human resources.

Answering these types of questions would help a lot. In addition to this, Pakistan must also take a futuristic view of the developments taking place in the world. Currently Pakistan's remittances are concentrated in the US and the UK and some Middle Eastern countries. China is going to become a greater economic power. Right now the presence of Pakistanis in China is next to nothing. Pakistan should focus on exporting its workforce there. With India, Pakistan does not enjoy friendly relationship but this should not stop Pakistan from tapping future prospects of receiving home remittances from Indian cities. For, India is the fastest growing economy after China and is set to join the club of world's major economies in a decade or two. Pakistan also needs to increase export of manpower to Malaysia, Indonesia and other Far Eastern countries with good growth prospects.

Curbing hundi/hawala: Instead of lamenting inflows of remittances through hundi/hawala, Pakistan should involve all stakeholders, including overseas Pakistanis, to devise a system for minimising inflows through illegal channels. Banks and foreign exchange companies should be given proper incentives to ensure that migrant workforce of Pakistan uses them for repatriating foreign exchange back home. In late 90s, the SBP had offered an incentive to banks for attracting larger amount of home remittances. It used to reimburse to banks one rupee against every dollar of home remittances transacted by them in excess of their previous transactions. Nobody knows what happened to this scheme. But the need for offering similar schemes is obvious.

The writer is a Pakistani freelance journalist. He can be reached at e-mail: Mohiuddin.Aazim@gmail.com