Pakistan’s envoys recognized the contribution of abroad Pakistanis sending remittances back to the homeland on the country’s 72nd national day.
Pakistan can boast of a year-on-year growth in remittances provided by Pakistanis living abroad, which has benefited the nation on both an individual and societal level.
According to World Bank data, Pakistan’s personal remittances as a proportion of GDP equaled to 6.5 percent in 2017 and 9.9 percent in 2020, indicating a significant growth. When compared to other regional countries, Pakistan does exceptionally well, with Bangladesh at 6.7 percent and India at 3.1 percent as of 2020.
According to data released by the State Bank of Pakistan, Saudi Arabia ($528.7 million), the United Arab Emirates ($483.8 million), the United Kingdom ($346.7 million), the United States ($209.8 million), and Oman ($81.9 million) are the top five countries sending remittances to Pakistan in February 2021.
This makes sense considering the size of the Pakistani diaspora, which is dominated by Saudi Arabia, the United Kingdom, and the United Arab Emirates. However, Pakistanis in the United States have a high socioeconomic standing, with households earning far more than the country’s median income, faring significantly better than their counterparts in the United Kingdom.
However, research has revealed that a number of concerns must be solved in order to not only boost remittances, but also to raise remittances through official channels. Informal routes can be used to send remittances, which can be utilised for illegal objectives such as money laundering and terrorism financing.
The Financial Action Task Force (FATF) keeps track of how nations are dealing with these concerns, and any flaws in these tactics harm a country’s image in the global financial system.
In a working paper for the European Central Bank in 2014, bankers Anneke Kosse and Robert Vermeulen claimed that one of the key reasons why migrants prefer informal over legal channels is the cheap transfer cost.
Financial services, such as remittances, should be provided through institutions that are “subject to adequate regulation in line with the FATF Recommendation” to have the potential to reduce overall money laundering or terrorism financing “by bringing customers into the regulated sector,” according to FATF’s 2016 guidance on “Money or Value Transfer Services.”
Increased remittances to Pakistan through legitimate, regulated channels will have a two-fold impact: first, it will boost Pakistan’s economy, and second, it will demonstrate Pakistan’s continued commitment to combat money laundering and terrorism funding in accordance with FATF standards.
Because Pakistan remains on the ‘grey list,’ this should be a top priority, and because low transfer costs attract individuals to utilise informal channels, lowering them might encourage more people to use official channels. Pakistan is expected to demonstrate that it is pursuing money laundering investigations and prosecutions to meet the final item on its 2021 action plan in order to be removed from the list.
Kosse and Vermeulen also discovered that if “new creative remittance options,” such as mobile payment solutions, are employed to broaden access, formal channels may be used more.
Companies like Remitly, located in the United States, have already aided in the implementation of this technique. In 2021, Pakistan launched their application as part of the Sohni Dharti Remittance Program, a point-based loyalty system in which money is transmitted from outside to Pakistan via banking channels or exchange businesses. It may be downloaded as an app.
Remitters get points based on the amount of money they contribute, with three reward levels: Green, Gold, and Platinum. Others should adopt this method since it encourages individuals to submit remittances through official channels.
The programme, however, has a poor rating, and several users have complained about not receiving reward points for remittances sent home. As a result, this app may be redesigned, or a new point-based app may be released in its stead.
The establishment of methods to encourage Pakistanis living abroad to send remittances through legitimate channels has the potential to improve the country’s image in the eyes of the FATF and the international financial community.
However, these methods must provide individuals with lower transfer costs and new ways to encourage them to participate. Pakistan has already taken strides in this direction, as seen by the app’s development, but consumer feedback indicates that there is still potential for improvement.