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” Dr. Ishrat Ex-Gov SBP- Remittance flows may not be affected “

December 7, 2014
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By: ASAD RIZVI (KARACHI)   Published on December 05, 2014
Today (December 4), I came across an interesting report in “BR” “Remittance flows may not be affected: Ishrat”. I have lot of respect for Dr Ishrat because during his tenure as Governor SBP, he played a vital role in giving a kick-start to the economy through effective use of the central bank’s monetary tool, which is now lacking direction, in recent times it has become quite wayward and ineffective, as MPS has almost no role to play in the economy and hence is disappointing.

I have reservations about his comments on remittances linking them with high foreign exchange reserves held by oil producing countries. He is of the view that due to higher FX reserves they can sustain the hit. He could be right but only, if the market rebounds quickly. However, lower oil price may not be sustainable for a longer period of time. Dr Ishrat is an economist and former Governor SBP he would be aware of what is referred to as the “Dutch Disease”, a term referring to harmful consequences of large increase in a country’s income. I do not believe that if the bearish trend continues, oil producing countries will sit complacently and not make a shift in their strategy.

About his comment on Pakistani youth, I support his view that youthful population maybe an asset to the world if properly invested in, as over 55 million youth are aged between 20 years to 35 years in Pakistan. But the sad part is, that historically, average spending on education remained far below 2 percent of GDP. Moreover, Pakistani youths lack required standard to meet global requirements.

Therefore, human development and transformation from Centralised system to market-based economy is essential for fine tuning. Hence, being an educationist people like Dr Ishrat have to take the lead to bring the much-needed changes and topple the obsolete system.

Further, the World Bank Economist Jose Lopez and Enrico Ponziani, a specialist in remittances has coined the term “Diaspora Bond” for building of dams. Basically “Diaspora Bond”, which is nothing more than “Milking Migrants” living abroad. The product is simply designed to attract the savings of migrants by emotional means or attack patriotism. In simple words it is another form of government debt.

For donor agencies the product attraction is because roughly there are over 205 million migrants that live outside of the country they were born and their estimated savings is roughly USD 425 billion. The idea is to get hold of the portion of their money and invest in infrastructure projects. There is quite a mixed response, as its short history suggests that Diaspora Bond has not been a very successful product in under developed countries and could attain limited success in Africa only.

In Pakistan, where large part of the economy is undocumented, Diaspora Bond has no future. I would like to make special mention that for the present government such product will be a total failure because of their poor history. In 1990s people were fooled with a slogan (Karz Utaro Mulk Sanwaro) get the country out of debt menace by repaying debt. The government is making record borrowings. In 1998, this government was responsible for freezing foreign currency accounts. Furthermore, Term Finance Certificates have been a total failure. Selling of government securities has reached an alarming level. So Pakistanis living abroad may not have a soft corner for such financial adventurism.

Copyright Business Recorder, 2014 

 

http://www.brecorder.com/pages/article/1248460/2014-12-05/remittance-flows-may-not-be-affected:-ishrat.html

 

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