How to Increase Formal Inflows of Remittances to Pakistan?

Project Active from to State and Macroeconomics

Remittances to developing countries sent through official channels were estimated at US$ 406 billion in 2012 (World Bank, 2012). This represents a growth of 6.5 percent over 2011, and is projected to rise by 8 percent in 2013 and 10 percent in 2014. Current remittance flows are over three times the amount of official development assistance (World Bank, 2012). In Pakistan, remittances through official channels have grown from just around US$ 1.5 billion in 1997/98 to slightly over US$ 13 billion in 2011/12 (State Bank of Pakistan, n.d.; see also Table 1). In the first six months (July–December 2012), they were slightly over Rs 7 billion—an increase of 12 percent over the corresponding period in the previous year (July–December 2011).

An earlier study (Amjad, Arif, & Irfan, 2012) analyses the possible reasons for this manifold increase and in its preliminary findings suggests that the increase is primarily due to (i) a shift from unofficial (and unrecorded) channels (hawala) to official channels; (ii) an increase in the number of migrants abroad; and (iii) a rise in migrants’ skill levels, resulting in higher wages and incomes abroad. The study also makes the important observation that the inflow of remittances is not just from Pakistani workers abroad but from the larger Pakistani diaspora, many of whom may have acquired nationality of their country of residence. The study also infers that official remittance flows also reflect shifts in the diaspora’s savings and assets to their home country. This study examines the remittance market for sending foreign exchange into Pakistan using remittance transfers both by overseas workers and the rest of the Pakistani diaspora, as well as by other agents for both legal and illegal transfers. Based on this analysis, the authors suggest practical measures that could lead to a more efficient and better functioning remittance market in Pakistan that also encourages the flow of remittances through official rather than unofficial channels.