Laraib Nisar
Foreign remittances can be a stabilizing factor in the economy of a country such as that of Pakistan. Foreign remittances are primarily the funds and earnings sent by expatriate citizens to support their families. People have often been using the hawala-hundi mechanism to send those funds but generally such transactions only through banking channels qualify as remittance. For nine straight months this year so far, the monthly average of such inward funds has topped 2 billion dollars. One major reason for this is the Action Plan that the Financial Action Task Force (FATF) gave to Pakistan after placing it in its grey list in June 2018.
Earlier, the transfer of funds by the Pakistani diaspora abroad happened mostly through unregistered money exchangers which functioned for quite some time informally. Many of these illegal currency dealers, were not only dodging the system but also involved in terror financing and grave money laundering offences. This was a major reason why the Financial Action Task Force (FATF) placed Pakistan in its grey list in June 2018. It also gave Pakistan an Action Plan to reform its financial system. Fortunately, FATF grey listing came as a blessing in disguise since Pakistan started a crackdown against the money exchangers involved in illegal activities, along with registering the ones not found guilty e.g. MoneyGram.
The FATF Action Plan also required tightening and plugging big loopholes in the banking sector. And according to the FATF latest review, Pakistan has now complied with most of the 27 points for action. Though the news is not as great as being put out of the grey list, if Pakistan continues its positive progress, it is expected to get out of the grey list by June 2021. The report acknowledged Pakistan’s significant progress to address many legislative gaps and clamped down on militant groups that have risen on FATF’s agenda, but also highlighted the sectors where deficiencies persist, including improvements in the investigations and prosecutions of all groups and entities financing terrorists and their associates and ensuring a comprehensive and effective implementation of penalties given by courts. The report also ensured that as soon as Pakistan shows it has completed these items, FATF will verify and members of FATF will vote in favor of Pakistan.
For further improving the influx of remittances, Pakistan needs to increase the number of people working in the countries where most of the remittances come from e.g. Middle Eastern countries, along with constructing skills-building institutions, train and send skilled workers to earn, as skilled workers are capable of earning two to three times more than the unskilled work-force, creating and increasing a desire among the Pakistani expatriate community to send money home; and, creating sufficient, capable and, most importantly, reliable infrastructure to facilitate remittance. Pakistan has made noteworthy progress in this regard and has strengthened its banking channel by making it more competent by ensuring quick delivery of funds from abroad, reducing the tariffs on such transactions to a minimum, and introducing a new initiative called ‘Roshan Digital Accounts’ which allows the Pakistani diaspora abroad to open accounts in Pakistan’s commercial banks along with allowing them to make investments in Pakistan. The scheme has been largely successful and almost 88000 bank accounts have been registered under it, with transactions of around $500 million. These initiatives have helped Pakistan’s economy sustain even in the challenging times of a global pandemic.
The foreign income won’t only help Pakistan in controlling the phenomenon of currency devaluation, but will also help in tackling the issue of circular debt; a ticking bomb for Pakistan’s economy. The government should spread awareness about programs like Roshan Digital Accounts as they’ll be helpful in increasing investments hence business sector will flourish and economy will prosper.
The author Laraib Nisar is a Defense and Strategic Studies’ graduate, working as a Research Associate at Center for Research and Security Studies (CRSS) Islamabad.
