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Pakistan's army of overseas workers keeps economy afloat

Almost 10 million Pakistanis work overseas and the sum they've sent home has doubled in the four years through June, to a record $13bn.

Karachi // 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, home town of the ruling People's Party about 300km 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 ageing workers tapping poorer ones for labour, total remittances to developing economies will rise 7.9 per cent this year, and reach US$534 billion (Dh1.96 trillion) 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, the former minister for overseas Pakistanis said 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 $13bn.

The rising tide of funds from overseas contrasts with a struggle by President Asif Ali Zardari's administration to raise enough revenue to fund programmes that would boost domestic growth.

Pakistan was among the 15 lowest revenue-gathering nations in the world as a percentage of GDP, according to the US 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 per cent of gross domestic product this year, wider than the government's target of 4.7 per cent, 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. "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 Mr 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 per cent, 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.

Pakistan was among the world's top 10 recipients of recorded remittances in 2012, according to the World Bank. Mr Sattar, the former minister, 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, the director of the Applied Economics Research Centre 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. "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 (Dh510).

In December, the government approved a plan to offer 3 million of Pakistan's richest tax evaders a chance to pay a 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 realised 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.

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