Pakistan Institute of Development Economics

Remittances for Growth: Initiatives for Remitters and Remittances 
Publication Year : 2017

The inflow of remittance in Pakistan reached US$ 19.9 billion during financial year 2015-16. On the other hand, the budget reserved ‘employee related expenditures’ in defense services was US$ 3.26 billion only. This implies that the salaries of more than 0.6 million defense employees are manageable within US$ 3.3 billion only. This amount makes only 15.6% of the amount of remittances received by the country through formal channels. If we assume that the marginal propensity to save for the families of remitters is only 16%, the savings should be sufficient to finance salaries of an army of 0.6 million people. The remittances sent by remitters are converted into local currency and paid to the families of remitters in Pakistan. Therefore, an amount of PKR 2089 billion comes into the hands of the families of remitters. Nobody knows that what proportion of this amount is consumed by the families of remitters and what happens to the amount leftover after consumption. Since the employment financed by the remittances is very small, this implies that the investable part of remittances is invested in non-productive and capital intensive business. Few small scale studies show that most of this amount is invested in purchase of plots. The problem with purchase of plots is that, even if you invest billions in a plot, no employment opportunity could be guaranteed. This paper argues that by some monetary and fiscal reforms, the investable part of remittances could be diverted to labour intensive and development projects, creating hundreds of thousands employment opportunities and provides an outline of such reforms.