By and large, remittances are deemed to be a panacea for tackling balance of payment crisis. Insightfully, remittances are sine qua non for averting balance of payment crisis, creating employment opportunities, shoring up foreign exchange reserves, tackling the stumbling blocks of debt servicing, addressing the glitches of twin deficits, augmenting tax-to-GDP ratio, buttressing local currency and last but not least propping up economic growth.
Out of nearly 250 millions of total population of Pakistan, approximately 11 million Pakistani diaspora are in virtually all continents of the world except Antarctica. It is a prevalent assumption that Pakistani diaspora have gotten the potential to remit up to $50 billion to Pakistan each year provided that the money is remitted through official channels circumventing the illegal Hawala/Hundi. There was a surge in remittances from $23 billion in FY20 to a peak of over $31 billion in FY22. However, the preceding fiscal year led to a squeeze in remittances by $4 billion to $27 billion, which put a financial strain on the sluggish Pakistani economy.
Illicit remittance trade is a global phenomenon and is ubiquitous even in the advanced economies; not confined to Pakistan only, to be precise. Legitimate global transactions are in the vicinity of $700 billion; believed to be 50 per cent of the total trade. What the world is doing in this regard is yet to be discerned. There is no denying the fact that it is disconcerting for the frail economies; Pakistan being one of them.
Pakistan’s burgeoning population growing at 2.5% could be an opportunity in disguise provided that skills of youngsters are honed and subsequently these individuals land gig in foreign countries eventually remitting money to Pakistan.
During the current fiscal, Pakistan is under an obligation to pay $25 billion in debt servicing. The tax-GDP ratio in Pakistan has literally stagnated at around 9 per cent for decades, a conundrum beyond comprehension.
The International Labour Organisation (ILO) says the number of persons unemployed in Pakistan is projected to reach 5.6 million this year. International Monetary Fund has projected unemployment rate of 8.5 per cent in 2023. It is rather unnerving. The Consumer Price Index (CPI) for the current fiscal year is projected to be 26 per cent vis-a-vis 29 per cent the preceding fiscal.
The Government of Pakistan’s inflation target is 21 per cent. Furthermore, the government hopes to achieve the economic growth of 3.5 per cent during the current fiscal year. The government has estimated about $17.62 billion in foreign assistance in the budget for the current fiscal year. During the last fiscal year, the government was unable to materialise the budgeted $22.8 billion foreign assistance in the wake of the suspension of the IMF programme, however, this year could prove to be a whole new ballgame though it may be too early to anticipate such a situation. Projected revenue collection target of Rs9.415 tillionr for FY24 might be met without the need for any additional tax measures. However, inflow of remittances in the range of $35 billion would be a dire need for Pakistan.
Remittances could prove to be a panacea during the current fiscal year.