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For the first eight months of fiscal year 2020-21, overseas Pakistani workers have been sending remittances averaging $2 billion a month. More than half of this amount is transferred from Gulf Cooperation Council (GCC) countries, with Saudi Arabia and the United Arab Emirates topping the list. About 96 percent of Pakistan’s foreign workforce is employed in this region where oil book, construction and infrastructure projects have attracted tens of thousands of laborers, semi-skilled and skilled workers.
After the end of the 1973 oil crisis — during which members of the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo targeting several nations that supported Israel in the 1973 Arab-Israeli War — the prices per barrel of crude oil quadrupled and cash inflows gave birth to big dreams in the sand dunes.
You may see the difference now. Very modern cities in the region rival western metropolizes within less than a generation. It is not oil anymore, it is the ideal of livable societies, financial and business hubs, tourism, and world-class health and educational facilities that attract millions each year. The transformation of the Gulf region couldn’t be possible without sweat and hard labor of youth from Pakistan and other regional countries.
It was perfectly a symbiotic relationship between a need for workers by the Gulf states and foreign remittances required by a developing country like Pakistan to relieve the burden of burgeoning oil import bills — the proverbial engine of economic growth. Starting with a few thousands in early 1970, now Pakistan has millions of workers abroad. The Pakistan Bureau of Overseas Migration reports having processed close to 10 million workers over the past few decades.
The outflow of the country’s working-age population has reduced the unemployment stress over the society that is facing unsustainable levels of population growth. Tens of millions of Pakistani workers abroad have changed the economic and social standing of their families back home by financing the education of their children, health of their relatives and by raising their living standards.
Rasul Bakhsh Rais
Besides the Gulf region, hundreds of thousands of professionals, like doctors, engineers and more modern fields of technology have settled and work in Europe and North America, constituting overall the sixth largest diaspora in the world according to the United Nations Department of Economic and Social Affairs. While the migration to developed countries falls into the category of brain drain, work permits in the Gulf are about employment, establishing a business, and now also an increasing trend of investing in real estate, trade and industries.
The role of foreign workers, remittances and the openness of host countries in the economic development of Pakistan is an understudied and less appreciated subject. One can gauge the importance of remittances from the fact that they help the country hugely in narrowing the current account deficit — the wide gap between exports and imports. Just to give you an idea, in 2018, imports were about $60.2 billion, and exports totaled around $23.6 billion. How much pressure such a reckless import regime would have on inflation, devaluation of currency and rise in the foreign debt, had Pakistan not received remittances of $20.9 billion that year?
Consider the accumulated effect of remittances on per capita incomes, demands for domestic goods and services and, more importantly, contribution to gross domestic product over the decades. A study of the State Bank of Pakistan last year indicated that between 1977 and 2019 Pakistan received $258.3 billion in remittances. Compared to this, foreign direct investment during that period was merely $44.5 billion and exports $480.1 billion.
Obviously, massive remittances have reduced dependence on expensive foreign borrowing to recover from the adverse effects of oil prices and have financed the current account deficit. However, there are more basic, structural and long-term positive effects on the national economy and Pakistani society that have to be appreciated. The outflow of the country’s working-age population has reduced the unemployment stress over the society that is facing unsustainable levels of population growth. Tens of millions of Pakistani workers abroad have changed the economic and social standing of their families back home by financing the education of their children, health of their relatives and by raising their living standards.
More than just contributing to increasing consumption at home, which is a common misperception, the overseas workers have invested in Pakistan’s real estate, businesses, workshops and the massive construction industry. Local communities consider the income and wealth earned by foreign workers as a mark of success that inspires youth to seek employment abroad, sometimes — at much greater risk — also in European countries.
The present government has introduced more transparent and innovative ways to send remittances through formal bank channels. Roashan Digital Accounts — foreign currency accounts to be opened and maintained by overseas Pakistanis — help transfer dormant funds deposited in foreign banks. Within the past six months, expatriates have deposited more than half a billion dollars into these accounts. It is meant to beat informal systems of trade and cash transfers, which have become a mode of laundering foreign exchange out of the country. The government has also floated Pakistan Development Bonds for overseas workers, which have been met with a big interest.
Net flows of remittances and increasing deposits in foreign currencies have saved the Pakistani rupee from a free fall that we witnessed in August last year when it touched 166 against the dollar. Now it is hovering down to 155-56. For such a massive role, the overseas workers haven’t received benefits back home, except facilitation desks at airports, which are often seen empty on arrivals.
*Rasul Bakhsh Rais is Professor of Political Science in the Department of Humanities and Social Sciences, LUMS, Lahore. His latest book is “Islam, Ethnicity and Power Politics: Constructing Pakistan’s National Identity” (Oxford University Press, 2017).
Twitter: @RasulRais