Interview with Dr. Ayub Mehar — a renowned economist
PAGE: Tell me something about yourself, please:
Dr. Ayub Mehar: I am associated as ‘Economic Advisor’ with the Employers’ Federation of Pakistan and serving as ‘Professor’ in Iqra University Karachi (Pakistan). I have been serving as ‘Economic Advisor’ of the Economic Cooperation Organization (ECO) Chamber of Commerce for 3 years and also ‘Director General’ in the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) for 7 years. Development Financing, Macroeconomic Policies, International Trade and Finance are areas of my interest.
I have completed several policy research studies on strategic issues including, ‘Bridge Financing and Fiscal Policies during COVID-19 Pandemic Crisis’, ‘Ineffectiveness of ESG Policies and Incentives: Impact of GSP Plus on Central and South Asian Countries’, ‘Infrastructure Development and Public Private Partnership: Measuring Impacts of Fiscal Policy in Pakistan’, ‘Economic Integration in CAREC Member Countries: Financing Economic Corridors and Sovereign Bonds Market’, ‘Infrastructure Development by Liberalizing Economic Policies: The Straight Path of Economic Prosperity’, ‘Financial Cooperation in South Asia: Recent Development and Challenges’, and ‘FDI, Infrastructure Development and CPEC: Is There a Connection?’ for various national and international institutions including World Bank, Asian Development Bank Institute, Friedrich Naumann Stiftung (Fur Die Freiheit), SAARC Chamber of Commerce and Industry, and ECO Chamber of Commerce and Industry.
The Technology Policy and Assessment Center at Georgia Institute of Technology acknowledged my membership in the distinguished panel of international experts for Indicators of Technology-based Competitiveness, which is a project of the US National Science Foundation, United States Government.
I am also alumni of the IAL Gummerbach Germany, where I got training in Public Finance. Recently, I have completed a study on “COVID-19, Digital Transactions and Economic Activities: Puzzling Nexus of Wealth Enhancement, Trade and Financial Technology” for a project on “Fintech and Covid19” jointly launched by Asian Development Bank Institute Tokyo and Cambridge Center for Alternative Finance at the University of Cambridge.
PAGE: How would you comment on Roshan Digital Accounts?
Dr. Ayub Mehar: The Roshan Digital Account (RDA) was launched in September 2020. The inflows from overseas Pakistani through this program since its inception have reached at $4 billion so far. The overseas Pakistanis have opened more than 340,000 accounts from 175 countries. This is a joint effort by the State Bank of Pakistan (SBP) and commercial banks to integrate the overseas diaspora with the country’s banking system.
To some extent this scheme has contributed in the building of foreign exchange reserves. It is interesting that the magnitude of foreign exchange inflows generated by Roshan Digital Account (RDA) is higher than the inflow of Foreign Direct Investment (FDI) of 2.6 billion dollars in the same period. Even this amount is higher than the borrowing from the International Monetary Fund (IMF) which is 3 billion dollars.
The breakup of RDA accounts indicates that total investments in Naya Pakistan Certificates (NPCs) was 2.3 billion dollar as of January 31, 2022. Further break up shows that 1.3 billion dollars have been invested in the conventional Naya Pakistan Certificates (NPCs) while 1.0 billion dollars was invested in Islamic NPCs. The higher rates of profits on NPCs attracted the investors from the Pakistani diaspora in these instruments while the non-resident Pakistanis have invested 34 million dollars in the equity market.
No doubt, these inflows have contributed to the buildup the foreign exchange reserves which helped to stabilize the value of Pakistani rupee. However, in this context it is important that the federal government has borrowed 13 billion dollars in the first seven months of current fiscal year. The borrowings through Sukuk and Naya Pakistan Certificate are included in this incremental borrowing, while borrowing from these instruments is considered as the most expensive borrowing.
PAGE: What is your perspective about the remittances sent by the Pakistani diaspora residing in Gulf countries?
Dr. Ayub Mehar: Workers’ remittances are one of the biggest sources of foreign exchange inflows for Pakistan. These largely finance the country’s trade deficit, contribute in building the forex exchange reserves. They provide a substitute of external borrowing also. Saudi Arabia, United Arab Emirates, United Kingdom and the United States are the main sources of inflows of workers’ remittances to Pakistan.
The aggregate workers’ remittances during first eight months of current fiscal year (July 2021 to February 2022) were 22.1 billion dollars, which is 7.6 percent higher as compared to the last fiscal year. The contribution of Pakistani workers in Saudi Arabia is 5.1 billion dollar which is the largest contribution, Workers in UAE contributed 3.8 billion dollars, workers in other countries of Gulf Council (other than Saudi Arabia and UAE) contributed 2.3 billion dollars. The contribution of Gulf countries in workers remittances to Pakistan is more than 50 percent, while share of Saudi Arabia is more than 20 percent.
PAGE: How helpful are the Pakistani diaspora living in the USA and Europe in terms of remittances?
Dr. Ayub Mehar: Remittances from UK rose by 14 percent to 2.8 billion dollars in current fiscal year, while Pakistani workers’ in USA have sent 1.9 billion dollars to Pakistan. Another notable point is the remittances of 4.2 billion dollars to Pakistan from countries other than Gulf region, USA and UK.
On average, monthly inflow of workers’ remittances is $2 billion since June 2020. Though remittances from Pakistani workers employed abroad decreased to 7.6 billion dollars in the fourth quarter of 2021 from 8.0 billion dollars in the third quarter of 2021.
However, the comparison on month-on-month basis is not appropriate in case of Pakistan because it is directly related with the Pakistani workers abroad who adjust their remittances to Pakistan on the basis of their personal needs. Minor variations do not explain any economic justification. So far as the unusual growth in workers’ remittances in recent past is concerned it is notable that the expatriate Pakistanis returned after being laid off. During the Covid-19 pandemic the unemployment of workers was a global phenomenon, so many expatriate has remitted their savings to Pakistan. It shows a jump in workers remittances during the crisis period.
PAGE: Pakistan is beset by twin deficits. Remittances are crucial for the economy. Could you give your views on it?
Dr. Ayub Mehar: It is unfortunate that macroeconomic indicators show a serious deterioration in the economy. GDP growth was 6.1 percent in 2017-18 now 4 percent growth is expected for 2021-22. Fiscal deficit was recorded at 2.3 trillion rupees for 2017-18, now it is expected 5 trillion rupees for 2021-22; Current account deficit was 19 billion dollar in 2017-18, now it is expected 20 billion dollar for current fiscal year. Trade deficit was 31 billion dollar for 2017-18 now it is expected for 43 billion dollar for 2021-22. The trade deficit in July-February 2021-22 was $14.4 billion, which is 82 percent higher than the trade deficit in the same period last fiscal year. Now, the government had estimated the annual trade deficit at $28.4 billion.
It is important to note that the higher deficit leads to more external borrowing. The higher value of imports is the major reason of steep increase in current account deficit. The value of import was 52.5 billion dollars during the first eight months of current fiscal year (July 2021 to February 2022). This shows a 55 percent increase in imports. The revised target of imports has been set at 75 billion dollars.
State Bank of Pakistan has introduced cash margin requirement (CMR) for the import of goods. The restrictions on consumer financing and cash margin requirements can curtail the imports but these steps may lead to cost push inflation in the country. The devaluation of Pakistani rupee may curtail imports expensive. Though, an increase in exports by 26 percent was recorded in the first eight months of current fiscal year, however, in comparison of growth in imports, the growth in exports is negligible. The value of exports from Pakistan was $20.5 billion in the first eight months of current fiscal year against $16.3 billion in the same period last year. According to the revised targets, the exports will touch 31 billion dollars in the full fiscal year. The inflow of foreign direct investment (FDI) into Pakistan was 1.2 billion dollars in July-January 2021-22. This was 1.1 billion dollar in the same period last year.
PAGE: How would you comment on the role of exchange companies operating in Pakistan?
Dr. Ayub Mehar: At the end of February 2022, aggregate foreign exchange reserves were recorded at 22.6 billion dollars. Out of which 6.3 billion dollars belong to the commercial banks and remaining are in the State Bank of Pakistan.
The State Bank of Pakistan has recognized the role of exchange companies in building these foreign exchange reserves. The role of exchange companies in the inflows of workers remittances is extremely important. The offices of exchange companies at abroad and their advisory services and facilitation in speedy and secure transfer of money play an important role in the confidence building of investors and depositors. In this way the exchange companies have also played an important role in the growth of remittances.
The data and common observations show that these companies have benefitted from the incentive schemes introduced by the government and reported a rise in inflows. The government facilitated the exchange companies through different schemes including the offer of monetary benefits.