Daily Times

Over the time, labour market has been globalized and, as a result, there is increased migration for employment purposes. Accordingly, remittances have been becoming an important source of income, especially in developing countries, which play an important role in enhancing consumption, private investment, education and health expenditure etc.

According to United Nation’s (UN) report on migration (2018), world’s migrant population is about 244 million, which comprises 3.3 percent of the world’s population in 2015. During the last decade, world’s migration growth rate was 2.2 percent, which was twofold of that of the previous decade, implying an increasing trend in World migration.

Along with the increase in world migration, remittances inflow to the receiving countries has also been increasing. In 2014, world remittances were $529 billion out of which $436 billion has been sent to the developing countries. This large amount of transfers has clear implications for the overall economic development of receiving countries; however; it largely depends on the household contexts, community circumstances, and the way decisions are made. Pakistan is no exception in this regard.

In 2013, around four million Pakistanis migrated which is approximately 2.3 percent of the total population. In 2012, Pakistan was one of the top ten remittance receiving countries, getting$14 billion (World Bank, 2015). Likewise, according to State Bank of Pakistan, Pakistan’s international remittances for years 2016 and 2017 are $19.9 billion and $19.4 billion, respectively.

Recently, along with my coauthors, I conducted two studies on the micro perspective of remittances. In particular, we were aimed at looking at the impact of remittances on spending on education and health care by the Pakistani households.

Using the data from Pakistan Panel Households Survey (PPHS) and Pakistan Social and Living standards Measurement (PSLM), we find three findings. First, remittances receiver households spend 68 percent more on children education as compared to non-receivers. Second, remittances receiver households spend around 50 percent more on health care expenditure as compared to non-receivers.

If we decompose total health expenditure into medicines expenditure and clinical expenditure; then, the impact of remittances on clinical expenditure is higher. It is indication of the fact that clinical services like clinical consultancies including fees of the doctors and specialists, laboratory tests, hospital charges etc. are expensive in Pakistan. Thus, remittances help in covering the expenditures on such services which shows betterment in the health status due to the preventive nature of the health outcomes. In addition to social sector, a huge chunk of remittances goes to the housing and real estate sector which is still un-documented.

In 2014, world remittances were $529 billion out of which $436 billion has been sent to the developing countries. This large amount of transfers has clear implications for the overall economic development of receiving countries; however; it largely depends on the household contexts, community circumstances, and the way decisions are made

On macro level, remittances constitute roughly seven percent of the volume of our economy. In the presence of declining exports and deteriorating terms of trade, remittances serve as cushion to the exchange rate stability and maintenance of the decent level of international reserves. As the new government has recently taken the oath, the central concern is whether the government has any long-term alternatives to IMF bailout package in order to cope with dwindling foreign reserves and a balance of payment crisis.

Yes, remittances can play the role of alternative to IMF’s lending due to three benefits. First, remittances can ease the current surge in the price of US Dollar in the country by ensuring a regular flow of US dollar to the country. Second, remittances are costless in the sense that there is no debt-servicing associated with it as compared to IMF packages. Finally, remittances may boost up domestic investment by relaxing the credit constraint in the country.

Given the importance of remittances for Pakistan, there is an urgent need to channelize the remittances effectively in order to enhance their beneficial effects. Firstly, documentation is of primary importance in this regard. Still, we have a huge fraction of remittances coming to the country through informal sources. Thus, encouraging remittances through formal sources would guide the policy makers about their true statistics and proper utilisation.

Second, one concern is that the investment of remittances in real estate sector is a non-productive business. Here, the government needs to intervene in order to control the speculative nature of such investment by bringing the real estate and construction sectors under the tax net. It can also be suggested that the easiest way of utilizing the remittances is to start the real estate project in public sector and utilise the earnings for the mega project.

Third, as we all know that Pakistan economy is endlessly becoming consumer economy. In this regard, the consumption sector should be regulated through taxes in order to persuade consumers to save and invest in productive sectors. Finally, credit market in the private sector is still in the beginning stages in Pakistan. A well-functioning private credit market could pave the way for the productive investment of remittances in the country. All of these guidelines can enhance the effectiveness of remittances in the country.

The writer is an Assistant Professor at the Pakistan Institute of Development Economics and can be contacted at Email: karim.khan@pide.org.pk

Published in Daily Times, November 1^st 2018.