Table of Contents

Report Topics

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1. Definition of Remittance.....2 2. Definition of Poverty....2 3. Remittances..........3 4. Remittances Growth in World.....5 5. Remittances of Pakistan..........6 6. Poverty in Pakistan....8 7. Remittances VS Poverty in Pakistan.......11 8. Conclusion.........14 9. References.....14

Definition of Remittance
Remittance refers to the portion of migrant income that, in the form of either funds or goods, flows back into the country of origin, primarily to support families back home. The greater share of these monetary flows benefits developing countries. In the last few decades the volume of migrants remittances worldwide has risen steadily (in nominal and relative terms) and currently represents a substantial source of revenue for many poor states. Remittances are an important source of income for households, in particular in developing countries. The flow of remittances is the least influenced by economic downturn and remains a stable source of income. Remittances have been identified as the third pillar of development as their volume is second to foreign direct investment and higher than overseas development assistance. Analytical studies have shown that remittances contribute to poverty reduction in home countries. These are some of the reasons why remittances have been receiving increasingly the attention of politicians and analysts.

Definition of Poverty
Condition where people's basic needs for food, clothing, and shelter are not being met. Poverty is generally of two types : (1) Absolute poverty is synonymous with destitution and occurs when people cannot obtain adequate resources (measured in terms of calories or nutrition) to support a minimum level of physical health. Absolute poverty means about the same everywhere, and can be eradicated as demonstrated by some countries. (2) Relative poverty occurs when people do not enjoy a certain minimum level of living standards as determined by a government (and enjoyed by the bulk of the population) that vary from country to country, sometimes within the same country. Relative poverty occurs everywhere, is said to be increasing, and may never be eradicated.

Remittances
Introduction
With the wake of Globalization, multiple factors have contributed to labor movement in which better working environment, more opportunities, and compensation are on top of priority list. In economic terms, the amount of money sent by foreign workers to their native homeland is called remittances. Remittances not only reflect the domestic labor working in the global economy but also show the connection between growth and integration with the world economy. Hence, remittances improve the integration of countries into the global economy. In simple words, remittances are also financial flows arising from the cross-border movement of citizens of a country and are different from the other capital inflows (foreign loans, aids and FDI) due to its stable and unreturned nature. Recent surge of remittances in Pakistan has unequivocally pushed the growth momentum of the economy along with macroeconomic stability. In addition to that, more foreign capital inflow (remittances) is likely to have impact on economic planning and human development that would lead to institutional strengthening.

It is commonly believed that heavy flow of remittances has greatly stabilized Pakistans financial sector that is in initial level of development. Remittances are also poverty cushion as increased money supply to stimulate the demand and increased consumption expenditures on goods and services would ultimately benefit the poor. Low level of economic activity has created unemployment for skilled labor while the remittances have created the opportunities even for unskilled labors. It has been generally argued that globalization has caused loss of power of nationstates and dismantled welfare state model that grossly reduced the efficiency of the governments. In 2005, total recorded flows of remittances in world exceeded $ 260 billion; Pakistan is being the beneficiary of US $4.28 billion that is 1.65 percent share of world remittances. Pakistan stands at the 15thposition in the worlds largest remittances receiving
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country. Pakistan can stand in a better position if more remittances are received through formal channels. Same holds for other developing countries of the world as currently they receive US $167 billions per annum.

During the mid-1980s remittances approached to $3 billion annually and savings of Pakistanis living in the Middle East were approximately 70% of their income. The data shows that they remitted about 75% of their amount saved. The majority of this money is used to pay for house construction, consumer goods, to pay-off debts, and to purchase land. The workers remittances in the decade of 1980s had positive economic and social effects on households receiving money from Middle East. Similarly, estimates showed that 42% of remittances were used to cover basic family needs, 29% spent on other consumer goods, and 13% were invested in some kind of business ventures. This inflow greatly contributed to the balance of payments and accounted for 76% of merchandise exports.

Remittances Growth in World According to World Bank estimates, growth in world remittances during 200 9 declined by 6.7 percent on the back of global financial crisis thereby maki ng it difficult for remittance senders.

However, number of countries received a higher level of remittances during 2009 against the previous year of 2008. Specifically, remittances flow to Asian countries remained stronger during the period under review. Within Asia, the concentration of higher remittances remaine d in the South Asia region where remittances increased by 4.9 percent in 2 009.

Remittances of Pakistan The flow of remittances has increased from $136 million in 1973 to $6.45 billion in 2008. In the early part of 1970s, the largest contributor to remittance inflows to Pakistan was the UK with a 54% share. Gradually and in particular after the oil price shocks in the 1970s, the demand for workers from the Gulf countries increased, so that by the end of the 1970s, UAE and Saudi Arabia were both contributing above 20% of the total remittances. This trend continued well into the 1980s. In 1981 for instance, Saudi Arabia contributed about half of the total remittances of $2.12 billion (compared to $578 million in 1977). After the 1990s, the share of remittances from the US relatively increased and in 2005 its share was already 30%. Appendix 1 provides the numbers of Pakistanis working abroad since 1971 by country, while Appendix 2 gives the data based on their skills from the Bureau of Emigration and Overseas, Pakistan.

Previous studies on remittances in Pakistan include estimating the determinants of remittances and linking them with their potential in reducing poverty. Nishat and Bilgrami (1993) show that remittances in Pakistan are significantly influenced by family size, income, education, skill, and living with or without family. The authors also show that migrants income level is the most important factor for remitting, such that if income increases by 10%, remittances will increase by s3.6%.4 An earlier study by Pasha and Altaf (1987) showed that migrants plan to return home may prompt them to remit more as part of their future planning. They may invest the remittance money in land and related assets. Moreover, Suleri and Savage (2006) show that migrant households in Pakistan are less vulnerable to economic shocks because they have better investment opportunities and assets such as a house. The flows of remittances to Pakistan have also shown an altruism reason. This can be seen from their increasing inflows by 10% in the wake of the earthquake in 2005, which helped to facilitate the recovery process. Remittances to Pakistan witnessed strong growth of 23.9 percent during 2009 over previous year 2008 followed by Bangladesh (19.4 percent), Sri Lanka (14.2 percent), Nepal (13.2 percent) and Philippines (5.6 percent). More recently, Worker remittances to Pakistan havesurged by 15.0 percent during July April 2009 10 overthe corresponding period last year.With the exception of February 2010, positive growth has beenwitnessed in all other months of current fiscal years 2009 10 over the corresponding months of last year. Remittances have played a key role in the growth process of Pakistan. A comparison of remittance inflow with key economic indicators provides an assessment of the importance of remittances at the macro and micro level. During the Seventies and early Eighties, the inflow of remittances was very large, about $37 billion. In 1983 when remittances were at their peak, at 10.06 percent of GDP, they financed 96.6 percent of the trade deficit and 84.8 percent of the current account balance.

Remittances from the Middle East through official channels accounted for 14 percent of the growth in GNP (home countrys income) and it was 24 percent.67 Since the mid-eighties, remittances started to decline and reached one-third of the amount remitted in 1982-83, i.e., $1.06 billion in 1998-99 from 2.9 billion in 1982-83 . This led to a rapid depletion of international monetary reserves, which affected the financing of the trade deficit. This may be the reason for a decline in imports despite trade liberalization a sharp decline in remittances retarded the efforts of liberalization. Since September 11, 2001, remittances have increased very sharply and reached 4 billion dollars.

Poverty in Pakistan
Poverty has many dimensions in Pakistan. People have not only low incomes but they also are suffering from lack of access over basic needs. The major challenge of today is poverty reduction. In Pakistan, Poverty Reduction Strategy was launched by the government in 2001 in response
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to the rising trend in poverty during 1990s. It consisted of the following five elements:(a) Accelerating economic growth and maintaining macroeconomic stability. (b)Investing in human capital. (c) Augmenting targeted interventions. (d) Expanding social safety nets. (e) Improving governance. The net outcome of interactions among these five elements would be the expected reduction in transitory and chronic poverty on a sustained basis. The reduction in poverty and improvement in social indicators and living conditions of the society are being monitored frequently through largescale household surveys in order to gauge their progress in meeting the targets set by Pakistan for achieving the seven UN Millennium Development Goals by 2015.

Pakistans growth performance over the last four years is enviable in many respects. Sound macroeconomic policies and implementation of structural reforms in almost all sectors of the economy have transformed Pakistan into a stable and resurgent economy in recent years. The real GDP has grown at an average rate of over 7.5 percent per annum during the last three years (2003/04 to 2005/06). With population growing at an average rate of 1.9 percent per annum, the real per capita income has grown at an average rate of 5.6 percent per annum. The strong economic growth is bound to create employment opportunities and therefore reduce unemployment. The evidence provided by the Labour Force Survey 2005 (First two quarters) clearly supports the fact that economic growth has created employment opportunities. Since 2003-04 and until the first half of 2005-06, 5.82 million new jobs have been created as against an average job creation of 1.0 1.2 million per annum. Consequently, unemployment rate which stood at 8.3 percent in 2001-02 declined to 7.7 percent in 2003-

04 and stood at 6.5 percent during July December 2005. The rising pace of job creation is bound to increase the income levels of the people.

In recent years the role of remittances in reducing poverty has been widely acknowledged. Remittances allow families to maintain or increase expenditure on basic consumption, housing, education, and small-business formation. Total remittances inflows since 2001-02 and until 2005-06 have amounted over $ 19 billion or Rs.1129 billion. Such a massive inflow of remittances particularly towards the rural or semi-urban areas of Pakistan must have helped loosen the budget constraints of their recipients, allowing them to increase consumption of both durables and non-durables, on human capital accumulation (through both education and health care), and on real estate. To the extent that the poorer sections of society depend on remittances for their basic consumption needs, increased flow of remittances would be associated with reduction in poverty.

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Remittances VS Poverty in Pakistan In case of Pakistan recorded remittances sent home by migrant from abroad has reached $ 6000 millions in 2007 from $1100 millions in 2000. The exact magnitude of remittances and informal channels. Table A in appendix shows that in decade of 1980s and after 9/11 incident remittances inflow were quite high. During 1970s average annual inflow of remittances were 4.2 percentages of GDP and during 1980s average annual inflow of remittances reached at 7.5 percent of GDP. In the decade of 1990s remittances inflow declined at its lowest level and reached to 2.9 percent of GDP. After 2000 again remittances inflow start rising and reached to 4.2 percent of GDP in 2007.

GDP and remittances inflow show an increasing trend till 1983, however after 1983 remittances inflow depict consistently declining trend till 2000 and GDP increase at decreasing rate during this period. After 2000 both series move in the upward direction. The figure makes it clear that over the time, trend in remittances and GDP growth are almost the same. Figure 9 exhibits relationship between poverty and remittances for Pakistan during
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1973-2006. Right vertical axis represents the remittances as percentage of GDP and left vertical axis poverty (head count) estimate.

The figure shows that poverty is negatively related to increase in remittances during the period of 1973-2006 in Pakistan. In the decade of 1980s poverty decreased coupled with increase in remittance inflows whereas decrease in remittance inflow during 1990s is associated with increase in poverty with remittances reaching its lowest point. However after the incident of 9/11 remittances inflow sharply moves in upward direction with poverty starting to decline as well.

Overseas migration and the resulting remittances have served dual objectives world wide; ie, easing pressure on employment market and providing foreign exchange for balance of payments as well as budgetary support. Remittances supplement the hous ehold income, uplift life standard and thus reduce absolute poverty. It is in t his context that countries like Philippine have promoted overseas migration
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as an industry. Remittances help the household to increase their consumption expenditure on food, develop expenditure on housing, skill development and establishment of small businesses thus improving the scope for higher future income. Remittances from expatr iate Pakistanis are believed and empirically proved to have had a major im pact on the reduction in the incidence of poverty. The total remittances inflo ws between 1990-99 and 2009-10 have amounted to $62.0 billion. Jump in remittances is more likely to have been a result of Government intervention such as the Pakistan. Remittance initiative which encouraged transmittal of remittances through formally recorded channels. Also the dep reciation of the Pakistan rupee attracted remittance inflows for investment p urposes. This massive inflow of foreign remittances, when translated into increased consumption expenditures and greater employment opportunities generated through greater investments in the construction industry, the SME sector, other businesses and consumption demand contributed to the decline in poverty in the country.

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Conclusion
Pakistan has emerged as Asian Tiger with reference to the Economic growth during last couple of years. Actually government has spent all this amount only on first strategy of poverty reduction, i.e. Accelerating economic growth and maintaining macroeconomic stability, while other four strategies have been left either untouched or neglected. Government only targeted high macro economic growth; the level of investment in human capital has not been seen at even a low extent. Augmentation in targeted interventions has also been misdirected. Employment opportunities should have been created with in the industrial or agricultural sector in order to accelerate the production of basic needs so that consumer goods should have been in the reach of low income group. While services sector was expanded without any planning, which resulted in a situation that mobile is kept by every one but they dont have access over basic needs. Concisely, in spite of all efforts of government poverty still stands as an iron wall for Pakistans economy. And to break this iron wall we are in need to apply all five poverty reduction strategies at utmost level. The policy inference is that remittances should not be regarded as the key instrument on par with traditional growth engines like exports and foreign direct investment (FDI) in promoting long-term economic growth and countrys prosperity. However, while remittances could have a significant impact on poverty reduction, governments in destination and origin countries should aim to sharpen the impacts of such international flows, particularly to the poor people.

References
www.worldbank.org/ www.economyofpakistan.blogspot.com www.academicjournals.org www.finance.gov.pk/survey www.pide.org.pk

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