KHALID ABBAS SAIF
FAISALABAD (March 11 2010): Economists have suggested that fiscal incentives should be provided to the returning Pakistani migrants who wish to set up small and/or medium-scale businesses.
In a study titled 'Remittances and Household Welfare', prepared by Vaqar Ahmed, Deputy Chief of Macroeconomics Section of Planning Commission of Pakistan; Guntur Sugiyarto, Economist, Development Indicators and Policy Research Division, Economics and Research Department, Asian Development Bank, and Shikha Jha, Senior Economist, Macroeconomics and Finance Research Division, Economics and Research Department, ADB, observed that these incentives may take the form of tax breaks, or other related initial concessions.
Second, to ensure future remittances cash flows, a special exchange rate may be offered on remittances arriving in special savings accounts in domestic financial institutions.
Third, the banking sector should be more proactive to increase the speed and certainty of remittance transactions to encourage more migrants to send their money through official banking channels, they added.
The economists said that this step would help in the development of the financial sector in the economy and contribute to the stability of macroeconomic fundamentals, in particular the balance of payments. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low income households. It is important to note, however, that the tax structure, related to remittances, should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance, they added.
They pointed out that the challenge for Pakistan is to channel the remittance flows toward long-term investments that can contribute toward sustained growth in the real sector, while at the same time leveraging the economy away from consumption-led growth. In this regard, several key measures that have been seen across the developing world have also been considered for Pakistan. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low-income households. It is important to note however that the tax structure related to remittances should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance.
In "Key Findings and Policy Implications", Economists revealed that with around two million Pakistani migrants in the Gulf region and almost the same number spread in North America, UK, and other countries, remittances from abroad have contributed significantly to the economy. The current contribution of foreign remittances is more than 4percent of GDP, and in some periods, they have become the major source of foreign exchange reserves. This paper examines the impact of remittances on the macro economy and household welfare in Pakistan using a CGE model and micro-econometric analysis. They said that the first approach is to highlight the macroeconomic and distributional effects of a reduction in remittances, while the second method is to show how remittances decrease the probability of being poor and affect the household consumption expenditure and hence poverty.
They pointed out the key findings are as follows:
(i) Descriptive analysis from survey data indicates that the mean income of a migrant household is 17.3 higher than a non-migrant household. The share of remittances in the total income increases as the household moves to a higher income group. Remittances also contribute more to rural household incomes than to urban household incomes. The share of remittances in rural households increased from 3 percent to 5 percent during 2002-06, while in urban areas it remained stable at around 4 percent. Regional characteristics also affect significantly the pattern of migration and therefore the flows of remittances in Pakistan.
(ii) The CGE simulation analysis shos that a 50 percent reduction in remittances adversely impacts real GDP growth by -0.74, real investment by -7.7percent, and total household consumption by -2.8 percent. As a result, poverty headc ount increases by 6.35 percent.
The reductions in consumption levels of rural non-farm and landless agricultural households shows the largest cut because of the remittance drop.
The poverty impact is much stronger in rural than urban areas, showing the stronger link between migration/remittance and poverty in rural compared to urban areas. This further highlights that many migrants from Pakistan are still low-skilled workers coming from agricultural backgrounds.
(iii) Results show that the probability of becoming poor declines by 12.7 percent if the household receives remittances from abroad. An increase in the household size and number of persons with secondary education lead to an increase in the probability of household member migrating. On the other hand, increasing the number of males over 15 years of age, living in urban areas, and having more household members with university education lead to a decrease in the probability of the household member going abroad.
(iv) The shares of household expenditures on food, education, clothing, and recreation increase with the availability of remittances. The predicted mean expenditure of migrant households is 41 percent higher than nonmigrant households. The highest increase is in the expenditure share on durables, ie, 74 percent. The budget share for education increases only by 2.9 percent for migrant households.
(v) The poverty headcount ratio and Gini coefficient decline by 7.8 percent and 4.8 percent, respectively, for households receiving remittances. Due to the global financial crisis, developing countries such as Pakistan, have witnessed a brief reverse migration following the laying off of workers abroad due to business closures and a general lack of demand. Pakistani overseas workers have returned home with their accumulated savings that increased remittance flows.
Furthermore, according to the Study, statistics shows the poverty estimates for both migrant and non-migrant households. The results suggest that poverty declines by 7.8 percent if the households receive remittances from abroad. This substantial reduction in poverty level signifies the importance of remittances received by households in Pakistan.
Similarly, the poverty gap and poverty severity also decline even by higher rates, ie, 11.5 percent and 14.9 percent, respectively. This implies that some of the remittance recipients are actually the poor households so that remittances reduce the poverty gap and poverty severity. Moreover, the income distribution of migrant households is actually better than non-migrant households. The Gini coefficient of migrant household is 4.8 percent lower than non-migrant households, study report said.
Copyright Business Recorder, 2010
Showing posts with label migration. Show all posts
Showing posts with label migration. Show all posts
Monday, March 15, 2010
Sunday, January 10, 2010
Home remittances
Editorial of Business Recorder 8-01-2010
Encouraged by a steep increase in home remittances in the recent past, authorities of the country have been taking several measures to increase such flows to narrow the gap in the external sector. In order to further facilitate banks and beneficiaries of home remittances under the recently launched Pakistan Remittance Initiative (PRI), the State Bank on 4th January, 2010 reduced the timeliness for payment and settlement of home remittances, in view of the problems faced by banks in crediting beneficiary accounts on the same day due to time and resource constraints. According to the SBP circular, new timeliness for the first batch would be remittances received upto 0900 hours that potentially cover remittances from countries within the time zone of the US, partially Europe and the Middle East, whereas the second batch would be referred to remittance transactions that potentially cover remittances from the countries within the time zone of the Middle East and Europe. After the successful implementation of the new payment system's architecture, home remittances will be credited in one-hour time to the beneficiary's accounts and the timeliness for the two batches will be reduced to 1100 hours and 1500 hours, from 1200 hours and 1600 hours respectively.
It is good to see that the SBP and commercial banks are adopting innovative ways to increase the inflow of remittances. Although, it is very difficult to quantify the overall impact of the latest measure on the level of remittances, yet, any increase, even if it is marginal, due to the new initiative would be welcome because of the current problems in the country's external sector. In fact, without substantial improvement in home remittances in the recent past, Pakistan's current account deficit would have been much larger and its foreign exchange reserves at a much lower level. In this context, it would be in order to also give due credit to the helpful role played by the banking community. It was definitely not easy for them to change their bureaucratic attitude and compete successfully with a highly organized informal sector, which had perfected its tools over time to operate on very thin margins and in a very efficient and speedy manner to attract clients in the overseas market. Their success rate could be gauged from the fact that Allied Bank, Habib Bank, KASB Bank, MCB Bank, National Bank of Pakistan and United Bank that are currently part of the PRI mechanism, have settled around 100,000 inter-bank transactions worth Rs. 6.2 billion during the last two months. Hopefully, the latest circular of the SBP would further facilitate the banks as well as the recipients of home remittances. Also, Bank Alfalah and JS Bank are expected to join the PRI mechanism soon. The shift to modernity and the provision of quicker service, in our view, was definitely a step in the right direction.
However, it needs to be highlighted that the latest measure taken by the State Bank, in fact the whole idea of Pakistan Remittance Initiative, centres around the provision of a high level of convenience and comfort to the households receiving home remittances from abroad. In our view, there are other more potent factors determining the level of remittances through the banking channels, which include the difference in the exchange rates offered in the official and informal markets, employment of Pakistanis in foreign countries and their income levels, and investment opportunities and political conditions back home. We expect that the government will also continue to keep a close watch on all these factors and try to immediately remove any impediments which could retard the present buoyant trend in home remittances.
Encouraged by a steep increase in home remittances in the recent past, authorities of the country have been taking several measures to increase such flows to narrow the gap in the external sector. In order to further facilitate banks and beneficiaries of home remittances under the recently launched Pakistan Remittance Initiative (PRI), the State Bank on 4th January, 2010 reduced the timeliness for payment and settlement of home remittances, in view of the problems faced by banks in crediting beneficiary accounts on the same day due to time and resource constraints. According to the SBP circular, new timeliness for the first batch would be remittances received upto 0900 hours that potentially cover remittances from countries within the time zone of the US, partially Europe and the Middle East, whereas the second batch would be referred to remittance transactions that potentially cover remittances from the countries within the time zone of the Middle East and Europe. After the successful implementation of the new payment system's architecture, home remittances will be credited in one-hour time to the beneficiary's accounts and the timeliness for the two batches will be reduced to 1100 hours and 1500 hours, from 1200 hours and 1600 hours respectively.
It is good to see that the SBP and commercial banks are adopting innovative ways to increase the inflow of remittances. Although, it is very difficult to quantify the overall impact of the latest measure on the level of remittances, yet, any increase, even if it is marginal, due to the new initiative would be welcome because of the current problems in the country's external sector. In fact, without substantial improvement in home remittances in the recent past, Pakistan's current account deficit would have been much larger and its foreign exchange reserves at a much lower level. In this context, it would be in order to also give due credit to the helpful role played by the banking community. It was definitely not easy for them to change their bureaucratic attitude and compete successfully with a highly organized informal sector, which had perfected its tools over time to operate on very thin margins and in a very efficient and speedy manner to attract clients in the overseas market. Their success rate could be gauged from the fact that Allied Bank, Habib Bank, KASB Bank, MCB Bank, National Bank of Pakistan and United Bank that are currently part of the PRI mechanism, have settled around 100,000 inter-bank transactions worth Rs. 6.2 billion during the last two months. Hopefully, the latest circular of the SBP would further facilitate the banks as well as the recipients of home remittances. Also, Bank Alfalah and JS Bank are expected to join the PRI mechanism soon. The shift to modernity and the provision of quicker service, in our view, was definitely a step in the right direction.
However, it needs to be highlighted that the latest measure taken by the State Bank, in fact the whole idea of Pakistan Remittance Initiative, centres around the provision of a high level of convenience and comfort to the households receiving home remittances from abroad. In our view, there are other more potent factors determining the level of remittances through the banking channels, which include the difference in the exchange rates offered in the official and informal markets, employment of Pakistanis in foreign countries and their income levels, and investment opportunities and political conditions back home. We expect that the government will also continue to keep a close watch on all these factors and try to immediately remove any impediments which could retard the present buoyant trend in home remittances.
Subscribe to:
Posts (Atom)
