According to the latest International Monetary Fund (IMF) report titled "World Economic Outlook" growth rate in the economies of the Middle East, North Africa and Pakistan would slow down considerably in the current year before recovering in 2018. The reason: a slowdown in activity in oil exporting countries. In spite of threats to globalization posed by the Trump administration that is proactively seeking to ensure balanced trade between the US and individual countries/trading blocs growth rate of individual countries remains inextricably linked to the global growth rate in general and the growth rate in a particular country's major trading partners as well as source of remittances. Pakistan as a case in point is heavily dependent on remittances from the oil exporting countries with Saudi Arabia and the United Arab Emirates together accounting for 7.2 billion dollar inflows in July-March 2016-17, an amount which manifests a decline from the 7.55 billion dollars remitted from these two countries during the comparable period of the year before. Bahrain, Kuwait and Qatar as the source of remittance income accounted for another 1.13 billion dollars in July-March 2016-17 reflecting a slight decline from the 1.17 billion dollars registered during the comparable period of a year before. In effect, around 62 percent of Pakistan's remittance income is sourced to oil exporting countries and is considered critical in providing support to the current account deficit, especially during recent years with exports declining, imports rising and heavier than ever reliance on borrowing to meet the deficit.

Data suggests that the decline in the growth of oil exporting countries has begun to negatively impact on their need to hire foreign workers (including Pakistani workers) which, in turn, would slow down the growth rate of all those countries with significant remittances sourced to them. In this context, the growth rate projected at 6 percent for the current fiscal year by Finance Minister Ishaq Dar in the budget documents appears to be over-optimistic on two counts. One relating to the decline in the growth rate of oil exporting countries and another to the likely impact of lower growth on the government's capacity to generate the budgeted 17.2 percent of GDP as tax revenue which, undoubtedly, would have implications on funding development projects and therefore on the growth rate itself.

India and Bangladesh both rely on remittance income too but the IMF has not identified them as countries which will suffer a considerable slowdown in growth due to a decline in the growth of oil exporting countries - India's total remittance income was in excess of 70 billion dollars in 2016 with oil exporting countries accounting for more than 30 billion dollars while Bangladesh accounted for 15 billion dollar remittance income. The reason Pakistan is in a worse situation as indicated in the World Bank estimate based on IMF balance of payments data, the World Bank and OECD GDP data is as follows: India's remittance income was 2.7 percent of GDP in 2016, Bangladesh's 6.1 percent while Pakistan's was 6.9 percent of GDP. Bangladesh reduced its reliance on remittances from the 2012 figure of 10.58 percent of GDP while Pakistan increased its reliance from 2012's figure of 6.2 percent. It is relevant to note that India and Pakistan had almost the same amount of remittance as a percentage of GDP in 2008 - at 4.1 percent.

In 2013, the last year in the tenure of the PPP-led coalition government the remittance to GDP percentage was 6.3 percent which rose to 7 percent in 2014, 7.8 percent in 2015 and declined to 6.9 percent in 2016. The question as to how the government can take effective measures to override the negative impact on growth due to the slowdown in the growth rate of oil exporting countries is therefore simple: there is a need to reduce reliance on remittances as a percentage of GDP by fuelling domestic output. That unfortunately remains susceptible to energy shortages, an overvalued rupee, heavy smuggling across our porous borders which reduce domestic sales, the government's ever-rising current expenditure as opposed to development expenditure and heavy reliance on borrowing by the government.

Copyright Business Recorder, 2017