Pakistan Reader# 352, 21 May 2022
On 13 May, the State Bank of Pakistan (SBP) released a monthly report on remittances. For the first time, remittances crossed the figure of USD three billion in a month, which gave hope that the country would achieve its annual remittance target of USD 30 billion. The average inflow per account was USD 10,095 by March-end and the toll is USD 10,320 in April. For the financial year 2020-21, Pakistan received USD 29.4 billion, a 27 per cent year-on-year growth, improving the country’s external sector position despite the challenging global economic conditions. It started increasing substantially during the pandemic, which discouraged mobility and non-resident Pakistanis resorted to online transfers and that opportunity was catapulted by technocrats in Pakistan to create scope for more dollar-denominated currency flow into the country. The remittances are an important asset for the nation due to its diversified diasporic networks. It is important to understand how such a feat was achieved and what is sustaining it.
First, Roshan Digital Accounts (RDA) were launched in September 2020 and as the name says, a digitally operated platform which enabled investment in government bonds directly through Naya Pakistan Certificates (NPC) as well. Other services like Roshan car loans and Roshan home loans have been provided on one platform for 9 million non-resident Pakistanis (NRPs). The NPC can be invested in four currencies, PKR, USD, GBP and EURO, with investment under PKR providing returns as high as 11 per cent. This has provided the nation with additional revenues and enhanced liquidity, which is very crucial for cash crunched forex reserves of Pakistan.
Second, regarding the profile of account holders, the government amended the definition of overseas Pakistanis which earlier included only those Pakistanis working abroad and sending remittances back to Pakistan, to now also include those Pakistanis born and living abroad. Therefore, the need to tap the collective strength of middle-class NRPs will ensure that the Pakistani Diaspora integrates themselves with the Banking and Financial System of Pakistan. The embassies and the State Bank of Pakistan (SBP) have collaborated in spreading awareness and benefits for NRPs who are looking to monetize their saving and serve the country as well. The fact that Saudi Arabia leads in remittances at home followed by UAE, UK and USA proves that expatriates with the family network still based in Pakistan find it favourable over informal channels. The FATF mandate to crackdown on hawala and hundi transactions has also made RDA a preferred medium to transfer savings in Pakistan.
Third, is the flip side of RDA due to more liabilities. Savings instruments and bonds are not debts, they are liabilities. And that means, they will have to be cleared and serviced before debt servicing, which makes RDA susceptible to economic crises and the repayment capacity of the government. Especially when the PKR has crossed the 200 mark per USD, it would inflate the size of liabilities. To maintain this flow of finance, another flow would be needed to avoid any stopgap and loss of credibility. Forex reserves would be supplemented with RDA savings and keep the wheel of micromanagement function but the macro impact on payback is another wait and watch the game for international lenders to the country.
Shahid Iqbal, “Record $3.1bn ances sent in April,” Dawn, 14 May 2022
“Remittances growth,” Dawn, 18 January 2022
“Roshan Digital keeps rising,” Business Recorder, 11 May 2022
“Understanding Roshan Digital Account: a PILDAT Virtual Course,” PILDAT, 18 October 2021