Remittances inflow supports economy to certain degree

Remittances inflow supports economy to certain degree

Interview with Mr Muhammad Idrees, President Karachi Chamber of Commerce & Industry

PAGE: Tell me something about yourself and your career, please:

MUHAMMAD IDREES: Well, I have been elected to lead the largest Chamber of Pakistan as its President for the year 2021-22. I have remained associated with the Businessmen Group (BMG) for more than two decades which was founded by our great leader Late Siraj Kassam Teli who passed away last year in Dubai due to cardiac arrest. I have also offered my services as Vice President KCCI in 2013-14 and President Karachi Electronic Dealers Association (KEDA) from 2009 to 2015, in addition to serving as Member of a Committee of Ministry of Maritime Affairs and Sindh IT Board. My Company Z.B.H International is involved in trading of electronic equipment, accessories and mobile phone etc. and I am also involved in real estate/ construction business.

PAGE: What is your perspective about the home remittances during the current fiscal year?

MUHAMMAD IDREES: According to the International Labor Organization (ILO), there were around eleven million Pakistanis settled in various countries around the World. During 1QFY22 (Jul-Sep 2021), Pakistan received the highest-ever remittances of $ 8.0 billion, a growth of 12.5% over $ 7.14 billion received in 3MFY21. September 2021, was the 16th consecutive month in which Pakistan received remittances of at least $ 2 billion, which is a positive development. However, the country’s improved performance in being able to attract remittances should not come as a surprise given that the government has been putting a lot of focus on expats ever since it came to power. The government has even implemented programs like the Roshan Digital Account (RDA) in this regards, which makes it easier for them to invest, buy cars and property in Pakistan. In a period of around a year, from the start of the initiative in September 2020 till September 2021, a total of 248,723 accounts have been opened by expats residing in 175 countries. Through this, $ 2.411 billion funds have been received and $ 1.66 billion has been invested in Naya Pakistan Certificates. Remittances play a vital role in the economy of Pakistan. They help cushion the current account deficit and provide a much-needed inflow of foreign currency into the country. It also allows the government to collect some additional taxes. Hence, inflow of remittances from Pakistanis settled abroad allow for at least some degree of relief, in the economy.

PAGE: Your views about the depreciation of Pak rupee on the business activities in Karachi:

MUHAMMAD IDREES: In May 2021, the Pakistani rupee recorded a 22-Month high of around PKR 152.27 / USD. After five months of depreciation, the currency hit its lowest ever rate of PKR 175.27 / USD on 26th October 2021. Since Pakistan relies, to a large extent, on imports to meet the demand of not just households but also transportation, power generation and industries, depreciation is constantly fueling inflation in the country. The businesses in Karachi are feeling the brunt. Karachi is the commercial hub of the country and constrains industries and businesses operating in various sectors. A lot of these rely on imported raw materials, semi-finished or finished goods as integral parts of their supply chains. When imports become more expensive, the final goods and services become costly as well. Hence, the businesses and industries in Karachi, much like in other areas of Pakistan, are in a situation where production and operation is becoming increasingly expensive whereas, the demand is restricted or stagnant.

PAGE: How would you comment on the impact of rupee-dollar parity on exports?

MUHAMMAD IDREES: Theoretically, a depreciating currency is supposed to discourage imports and improve the export performance in the country. This has rarely ever been true for Pakistan. The country seems to be setting new highs in imports, while, exports have always struggled, despite repeated efforts of the governments that have ruled Pakistan. Pakistan suffers most in exports because of lack of diversification in the products it offers. This stems from various reasons including the fact that the cost of doing business is so high that Pakistani goods are unable to compete in the Global market. It was recently reported in the news that Pakistan’s Real Effective Exchange Rate (REER) index had fallen to 95.9 in September 2021. A REER of below 100 indicates that the country’s imports are expensive while exports competitive. Although Pakistan’s exports are increasing, the quantum of imports is so high that Pakistan has accumulated a trade deficit of around $ 4.2 billion in September 2021.

PAGE: What is your take on the bottom line of the national and multinational organizations in the wake of dollar appreciation?

MUHAMMAD IDREES: The rupee depreciation and inflation in the economy have caused serious issues for pretty much the entire business and industrial community of the country. The cost of doing business whether it may be utility rates, transport charges or cost of raw materials, is increasing at an alarming rate whereas the demand is slow to recover in the wake of the pandemic. As a result, the bottom lines of most organizations will take a hit to at least some extent. However, those organizations that earn in foreign currency, such as companies that export IT services, will likely see a surge in their earnings. Although most organizations are going to face a negative impact, some will find this environment to be beneficial.

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