March 26 (Bloomberg) -- Living in poverty in a mud shack in Pakistan, Mazhar Ali dropped out of school, sold the family’s two buffalo and bought a visa to work in Dubai. The money he sends home is paying for a new house.
“We’re going to build three rooms with bricks and cement, plus a courtyard and a washroom,” said his younger brother Azhar in Larkana, hometown of the ruling People’s Party about 300 kilometers north of Karachi. “We will then start marrying one by one, starting with Mazhar sometime this year.”
The family’s change in fortunes reflects a rising trend of rich nations with aging workers tapping poorer ones for labor -- total remittances to developing economies will rise 7.9 percent this year, and reach $534 billion by 2015, the World Bank says. For Pakistan, the income offers a source of stability, with the country poised for its first civilian handover of government in May even amid power shortages, bombings and a Taliban insurgency.
“This is our savior for keeping Pakistan out of the oxygen tent,” Farooq Sattar, former Minister for Overseas Pakistanis said in an interview in Karachi last month before his party quit the government alliance. “It has kept us from a complete economic collapse.”
Almost 10 million Pakistanis work overseas and the sum they’ve sent home has doubled in the four years through June, to a record $13 billion.
The rising tide of funds from overseas contrasts with a struggle by President Asif Ali Zardari’s administration to raise enough revenue to fund programs that would boost domestic growth.
Pakistan had to pay about $7.5 billion to the IMF between 2012 and 2015, Moody’s Investors Service said in July. The government repaid $3.2 billion as of Feb. 26, the central bank said.
The government is evaluating a possible further loan from the fund as a buffer against shocks, Saleem H. Mandviwalla said in December as Finance Minister.
The local currency has fallen on concern loan repayments will erode foreign-exchange reserves, which fell to $7.5 billion in January from $11.8 billion a year earlier, according to the central bank. The rupee traded at 98.35 per dollar at 9:30 in Pakistan, near a record low.
Pakistan was among the 15 lowest revenue-gathering nations in the world as a percentage of GDP, according to the U.S. Central Intelligence Agency’s World Fact Book 2012. The South Asian nation recorded the highest budget deficit in two decades in the fiscal year through June as it missed its tax target.
The nation’s fiscal deficit may be 7.5 percent of gross domestic product this year, wider than the government’s target of 4.7 percent, the IMF said in January.
Among the biggest challenges for the government is the need to add almost 4,000 megawatts of power generation to end a shortage that’s causing blackouts for as long as 18 hours a day, idling factories and swelling unemployment. The government said energy shortages cut economic growth last year by as much as 4 percentage points.
“Extreme poverty has not risen as much as it would have without remittances,” Rashid Amjad, a professor at the Lahore School of Economics said in an e-mail. “Most of the remittances are flowing into consumption, real estate, housing and the stock market, and have played a critical role in keeping Pakistan’s economy afloat.”
Pakistan will hold parliamentary elections on May 11, after the outgoing government, led by Zardari’s Pakistan Peoples Party, became the first democratically elected administration in 65 years of independence to complete its term.
The Peoples Party, dogged by the energy crisis, security concerns and inflation above 7 percent, garnered half the support of its leading rival, the Pakistan Muslim League of former premier Nawaz Sharif, in a March 4 opinion poll published by Gallup Pakistan.
Remittances that fuel a thriving underground economy may rise further in the next few years as more Pakistanis seek employment overseas, said G.M. Arif, an economist at the Pakistan Institute of Development Economics in Islamabad.
Pakistan was among the world’s top 10 recipients of recorded remittances in 2012, according to the World Bank. Sattar estimates billions of rupees from abroad are unreported, transferred with the help of illegal money operators known as hawala or hundi. Pakistan’s recorded remittances would double if the illegal channels were closed, he said.
Some Pakistanis also use the system to avoid paying tax, said Nuzhat Ahmad, director of the Applied Economics Research Center at the University of Karachi.
“If I get a remittance and I buy a house from it, I can say my brother has sent me the money from abroad, and I don’t have to pay income tax,” she said from her office. “That’s a big downside” for the government.
Only 856,000 of the country’s 183 million people pay tax, according to the Federal Board of Revenue. Each taxpayer contributes on average 13,673 rupees.
In December, the government approved a plan to offer 3 million of Pakistan’s richest tax evaders a chance to pay a one-time 40,000-rupee penalty on undeclared income and assets of as much as 5 million rupees, in an effort to widen the tax net.
Meanwhile, many Pakistanis continue to abandon roles in the domestic economy for the promise of greater wealth overseas.
Qamar-uz-Zaman, 33, works as a security supervisor at the Sofitel Palm Jumeirah resort in Dubai. He left his home in Kotli in Pakistan-administered Kashmir in 2011 after he realized his teaching job wouldn’t pay enough to feed his family. In two years he’s sent enough money home for his brother to set up a small cosmetics shop.
“Things have totally changed for us and now we’re very excited to plan Qamar’s wedding for which we definitely have enough money,” Zaheer Abbas, the family’s youngest brother, said by phone.
The rise in fortunes for families such as Qamar’s show why workers are tempted to take jobs in countries that often have harsh conditions for migrants.
A 2011 report in the Health and Human Rights journal cited cases of construction workers suffering heatstroke during 12-hour shifts in temperatures as high as 55 degrees Celsius (131 Fahrenheit) and female domestic staff working 100 hours a week.
For Mazhar, the gamble with the family’s cows has paid off. The 935 dirhams ($255) a month he earns has allowed him to repay an uncle who loaned him part of the cost of his visa, and the new house is almost finished.
“Then we will try to replace the cattle,” his brother Azhar said. “Before, we couldn’t think of buying anything. Just food.”
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