Pakistan’s ‘overseas assets’

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SOURCEBusiness Recorder
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Over the last year PM Khan has frequently labelled overseas Pakistanis as the country’s assets. This week was no different when he chaired a meeting in which the importance of worker remittances and its remittance through formal channels was discussed. The question is how much does anyone in Khan’s administration know about Pakistan’s overseas assets?

There is no doubt that labour, not textile, is Pakistan’s biggest export. Measured by worker remittance flows, labour export is about 80 percent of Pakistan’s total goods export. And yet the subject receives a rather stepchild treatment manifested by huge research gaps in our collective understanding of Pakistani workers abroad, details of which are discussed in BR Research’s piece titled Pakistan’s economic stepchild (published Jul, 22, 2019).

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A recent study by the SDG section of the Ministry of Planning partially fills this gap. It so happens that the UN’s SDG goal 10.c aims at reducing the transaction cost of migrant remittances to 3 percent by 2030. And where does Pakistan stand?

Well, there is a little of bad news, but on the whole, it is in fact rather good news. The bad news is that the weighted average cost of transaction in the first half of 2019 stood at 3.64 percent, which is higher than the SDG target. Then again, the target isn’t to be met until 2030, whereas – and this is where the good news begins – average cost of remittance has been consistently going down over the course of years.

The research, authored by Faiz Ur Rehman, Muhammad Nasir and others, shows that it is costlier to remit $200 as compared to $500. This is because the cost or free of remittance transfer is a flat charge per remittance transaction, which in turn means that the cost of transaction drops in percentage terms as the size of transaction increases. The report makes a few recommendations previously not brought to fore in policy circles, three of which are summarized below. First, it recommends that Pakistan Remittance Initiative (PRI) should initiate tie-ups with world renowned money transfer operators such as Western Union and Money Gram International that combined have a significant share in the remittance market.

Second, that the PRI be made an “autonomous institution or a part of a government division (currently it is just an initiative) which would access and maintain complete data related to remittance transactions. Such an institution, thus, should be tasked to make, evaluate, and regulate the policies related to remittances.”

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And third, that remitters should be informed that remitting bigger sums through fewer transactions is much economical than frequent transactions of smaller amounts, alongside information about cheaper bank to bank and MTO transfer channels.

The findings of this research require further deliberation and are indeed a good step towards filling the knowledge gap. But a lot more needs to be done. For instance, the debate over the average transaction size is still unsettled.

BR Research’s earlier published interviews with PRI’s leadership reveal that average transaction size is $700-$800. But what is not known whether or not $200 size transactions (which are costlier to remit than $500 plus transactions) are a significant share of total remittance flows. If it is not, then perhaps awareness campaign about size of remittances may not need to be the most important item on the agenda. assets

Nor does Pakistan’s economic community have reliable estimates about percentage distribution of remittance across income strata, destination cities and districts within Pakistan, type of migrant worker, or even whether or not the size of remittance inflows to a single household reduces over time. The answer to these kinds of questions will have implications both for policymakers/regulators and for banks/MTO alike. One hopes P-Block’s research efforts will be followed by all others involved in the labour and remittance markets.

(This news/article originally appeared in Business Recorder on November 29th, 2019)

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