False Signals

By Anjum Altaf

The Prime Minister has praised his economic team for an ‘economic turnaround’ that comprises declines in the current account and fiscal deficits and increases in foreign direct investments and remittances. Unfortunately, all these are misleading indicators but one in particular is especially egregious and contradictory.

Why is the increase in remittances considered a part of the economic turnaround and something that governments consider an achievement worthy of praise? Consider an anguished airport conversation with a Pakistani working in Italy and supporting a wife and two children in Pakistan. He used to send the equivalent of Rs. 50,000 per month in lira for family support; now the equivalent of Rs. 80,000 is needed to sustain the same expenditures. The increase in remittances is an outcome of greater economic distress in Pakistan. It is a false signal reflecting economic failure, not success.

Before patting themselves on the back for ever-increasing remittances, policymakers should think through this phenomenon with understanding and empathy. Remittances grow for two reasons: individual migrants send back more money and the stock of migrants increases as more Pakistanis emigrate. The explanation for the first component has been provided above — it reflects the economic distress inflicted on working class families by rapid inflation in Pakistan. But what is the explanation for the increasing number of Pakistanis seeking employment abroad? Very simply, it is the inability of the domestic economy to generate a sufficient number of jobs paying enough to sustain the families of individuals entering the labour market. It is once again a reflection of economic failure, not success.

Consider the miseries inflicted by this phenomenon cruelly celebrated as a success of economic policy. In human terms, it involves young men separated involuntarily from their families — parents, siblings, wives, children — for long stretches of time, often living abroad in poor, exploitative, and discriminatory conditions. 

Many low-income workers abroad have paid huge amounts to unscrupulous middlemen who act as facilitators. A recent ILO estimate puts the amount payed in bribes by South Asian workers in the Gulf at $15 billion. This does not include payments by individuals who are duped and fail to emigrate inflicting huge liabilities on their families.

Even more tragic is the fate of those who get smuggled abroad and are either abandoned in remote places to be incarcerated in camps or left to suffocate in airless containers or sink aboard flimsy ferries. The stories of those who make their way back to Pakistan are harrowing for those willing listen, a devastating indictment of an economy and society that consigns its young to such fates.

There is yet another contradictory and ironic aspect of this phenomenon. If labour is Pakistan’s biggest exportable commodity (in 2018, remittances were $21 billion versus a $14 billion contribution from textiles, the largest commodity export) and our measure of success is an increase in remittances, why don’t we export even more bodies than we are doing at present? Why then make such a hue and cry about overpopulation? Should we not produce even more children and export them to earn abroad and send back remittances?

This is a rhetorical question to highlight the fact that our policymakers talk through their hats but there is a serious aspect to it as well. If we are reduced to exporting human beings for our survival, wouldn’t it make sense to invest in them to increase their productivity and market value abroad. That would mean investing in their health, education, and training as a conscious policy to increase remittances. Shouldn’t governments work to upgrade vocational skills of individuals instead of being obsessed with their moral piety especially given the fact that all the money spent on the latter has yielded little in return besides dogmatism.

Isn’t it a hugely puzzling occurrence that in a country with a population exceeding 200 million with serious problems of under-employment, it is impossible to find a reliably competent plumber or electrician or mason? Or that Pakistani doctors working abroad are sent back as improperly certified? A programme to upgrade the skills and certifications of those wishing to emigrate would have a beneficial spillover effect on the deficiencies in the local market as well.

The Pakistani economy is in intensive care and the indicators the Prime Minister has cited as evidence of an economic turnaround have behaved in exactly the same manner as they have after almost each of the previous twenty-two or so IMF hospitalizations. The real turnaround requires the creation of decent jobs which, in turn, calls for structural reforms and a framework for economic growth. While this may take time, progressively driving remittances down by providing jobs at home should be adopted by the government’s team as a leading measure of the success of a real economic turnaround. Involuntary migration forced by economic desperation is a blight on the face of the nation, not something to celebrate.

This opinion was published in Dawn on 27 October, 2019 and is reproduced here with the author’s permission. The writer was dean of the school of humanities and social sciences at LUMS.

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2 Responses to “False Signals”

  1. Anjum Altaf Says:

    A number of readers on the Dawn website have raised the point that remittances should not have increased since the Rupee has depreciated. The following is a typical comment:

    “I find your argument about the Pakistani worker in Italy illogical. If he is sending $100 then his family is better off with the PKR depreciation. Instead of getting Rs 10,000 (USD 1 = PKR 100) as it was not too long ago, his family is getting Rs 15,600 (USD 1= PKR 156). With the same amount of dollar remittance, his family is getting more in PKR. Have I misunderstood this?”

    The observation is perceptive but the countervailing tendencies do not offset each other completely as the following should make clear.

    Since this article is about policies under the PTI government, the appropriate starting point is the date it took office — 18 August, 2018.

    On 18.8.2018 the exchange rate was $1 = Rs. 123
    On 27.10.2019 (when the opinion was published) it was $1 = Rs. 155.

    Household expenses of Rs. 50,000 on 18.8.2018 required a remittance of $406. Household expenses of Rs. 80,000 on 27.10.2019 (to keep the standard of living the same) required a remittance of $516.

    Thus, remittances went up despite the depreciation of the Rupee because the depreciation could not offset the even steeper increase in the cost of living taking the numbers used in the article.

  2. Shahid Mehmood Says:

    Very good Dr. Sb. I find myself in agreement with what you’ve written, which presents an alternative view to the irrational exuberance at display within the government circles. I had something similar to say when I wrote an article about a similar tweet by the PM about signs of economic resurgence https://www.thefridaytimes.com/is-the-economy-really-turning-around/

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