Prospects of foreign remittance into Pakistan.

Pakistan is one of the major beneficiaries of foreign remittances, whereas the volume of foreign remittances to Pakistan has also increased in recent past. The growth of these flows has outpaced Foreign Direct Investment (FDI) and official development assistance to the country. Pakistan started to export manpower abroad particularly in the Middle East countries following oil price boom in the early 1970s. Because of labor shortage in the Middle East, they had to import foreign labor to gear up huge development activities financed by surplus oil revenues. Since then, exports of manpower and remittance inflows are increasing every year with a few exceptions. We have seen that migrant and diaspora remittances has flowed generously immediately after the COVID-19, which once again demonstrating Pakistan's cyclical nature of remittances.

Over 6 million Pakistani workers have received overseas employment. It is estimated that more than 0.3 million emigrate every year for jobs from Pakistan. Officially recorded remittances should be channeled through banking networks only. Beyond official channels, a huge amount of remittances also come through hundi or friends or relatives where funds are being transferred through underworld activities, e.g. smuggling, hundi, in which agents collect remittances in the foreign country and their agents pay the equivalent Rupees in Pakistan to the sender agents. At the same time, Pakistani agents also collect Rupees from any local person or smuggler and the collector's agent pays the collected remittance in the foreign country. These processes deprive the government from taxes and foreign currency inflows decrease.

There are not enough facilities to transfer remittances in Pakistan from different countries. At the same time, transfer fees are also high and remittance transfer to rural areas is also difficult. In this case, the role of public sector commercial banks has gradually decreased while private banks have emerged as major players in channeling remittances. In recently months; due to Financial Action Task Force (FATF), Pakistan has also taken various measures to control unofficial channels being used for the remittance. As per an estimate, in Pakistan, 60 percent of the total volume of remittances have been channeled through the official sources, while remaining 40 through hundi, friends and relatives. If this amount of remittances are made through official banking channels, the current account balance would...