How the Global and Gulf Financial Crises Affected Pakistan: Ten‐year Review0
| Published date | 01 October 2021 |
| Author | Sajid Amin Javed,Badiea Shaukat,Iftikhar Ahmad |
| Date | 01 October 2021 |
| DOI | http://doi.org/10.1111/imig.12789 |
How the Global and Gulf Financial Crises
Affected Pakistan: Ten-year Review
Sajid Amin Javed*
1
, Badiea Shaukat**,***and Iftikhar Ahmad****
ABSTRACT
We show that the impact of global financial crisis (GFC) on Pakistan’s economy mainly trans-
mitted through Gulf Financial Crisis (GCC). In this regard, we assess the effects of both the
global and Gulf financial crises on remittances, workers’emigration, return migration, national
savings and foreign investment. Applying Exploratory Data Analysis (EDA) before (2000–07)
and after GFC (2008–18), we demonstrate that Pakistan witnessed remarkably low FDI inflows
and labour force emigration along with higher return migration rates after the crises. Invest-
ment from the UAE and other Gulf countries declined eightfold immediate after the global
financial crisis, contributing considerably to the decline of the country’s GDP growth during
2008–10. There was significant curtailment in emigration volumes and spurts in return migra-
tion after 2012, because of the Gulf oil price crisis. The positive trend in remittances until
2015 seems to be influenced by post-9/11 anti-money laundering legislation and depreciation
of the rupee.
BACKGROUND
We examine the effects of the global financial crisis (GFC) and the Gulf financial crisis (GCC) –
the “twin crises”henceforth –on Pakistan’s economy, with a focus on emigration, return migration
and integration of the return labour force. Evidence suggests that financial crises, through a slow-
ing-down of economic activity and other channels, affect labour markets (Ashraf et al., 2012).
Reduced economic activity curtails the demand for labour (Manning, 2002). Financial crises are
also associated with financial market imperfection, affecting firms’access to credit, which may
adversely affect the employment rate (Wasmer and Weil, 2004). Wealth shocks during these crises
lead to a drop in employment levels, especially when considering the volume of emigrant labour in
the market.
Pakistan’s economy also witnessed the adverse impact of GFC. The country witnessed fall in
growth trajectory (Khawaja et al., 2010; McCartney, 2011; Draz, 2011; Ashraf et al., 2012). Post
GFC, Pakistan experienced the declining foreign reserves and inflating trade deficit due to the slow-
down in domestic production sector. This further escalates the poverty, creating the food and
energy crises (Ahmed and O’Donoghue, 2010; Azam et al., 2011). Decline economic activities
along with trade deficits made it hard for SMEs to sustain and resulting an increase in unemploy-
ment (Shaikh et al., 2011; Syed et al., 2012). Haq et al. (2014) show the decline in employment by
* Sustainable Development Policy Institute (SDPI), Islamabad,
**International School, Huaqiao University, Quanzhou,
***Antai College of Economics and Management, Shanghai Jiao Tong University, Xuhui,
**** Pakistan Institute of Development Economics Pakistan (PIDE), Islamabad,
The Acknowledgement section was removed following the publication of this article on [19 November 2020].
doi: 10.1111/imig.12789
©2020 The Authors
International Migration ©2020 IOM
International Migration Vol. 59 (5) 2021
ISSN 0020-7985Published by John Wiley & Sons Ltd.
six per cent during 2007–11 due to GFC. Further, decline in FDI and workers’remittances due to
GFC and GCC lowered the domestic saving rate, creating insufficient funds which further increase
overall poverty and slowdown the growth process (Ahmed and O’Donoghue, 2010; Azam et al.,
2011; Raza, 2015; Raza et al., 2018).
In addition, the post-financial crisis changes in production structure may alter the mix of labour
required for the economy. Previous research has documented the exploitation of migrant workers,
wherein workers are forced to work for longer than regular hours (Ariff and Abubakar, 1999).
Moreover, unskilled workers with low productivity are the most likely to lose their jobs during
financial crises.
0
Pakistani workers in the Gulf region are highly vulnerable to exploitation and loss
of jobs, as the majority work in low-skilled employment.
This loss of jobs, in turn, lays the foundation for sudden dramatic cuts in the remittance flows to
the home country –Pakistan in the present case. Further, it causes emigrant labour, both long-term
and short-term, to return home (Hausmann and Nedelkoska, 2018). This is known as return migra-
tion. Additionally, an economic slowdown and financial constraints may decrease the inflow of aid
and investment from crisis-affected countries. Most Pakistan’s remittances and investments are from
the Gulf countries. Finally, lower aid, investment and labour demand from host countries may
translate to lower economic growth during and after the crises.
Emigration from the areas constituting present-day Pakistan dates to the pre-independence era
when people flocked to work in the plantations and mines of East and South Africa under the so-
called indentured labour system. During World War II, many people were attracted by wage differ-
entials and labour shortages in the UK. Seamen took up industrial jobs in the UK; later, their fami-
lies and friends joined them, thereby initiating a process of voluntary emigration. According to the
British Census, the number of Pakistanis in the UK went up from 32,000 in 1961 to 170,000 in
1971.
In contradistinction to the outflow of less-skilled people, Pakistan also suffered a considerable
brain drain to the UK, United States, Middle East, Canada and Germany that began in the 1960s
that continues to this day, although this phenomenon is less documented (Arif and Irfan, 1997).
The stock of Pakistani immigrants varies by receiving countries in terms of the cause of migration,
the permanence of the move, homeward remittances and the possibility of returning home perma-
nently. Whereas initially, emigration was mostly permanent and semi-permanent in nature, the trend
of short-term contract emigration emerged after the 1973 oil crisis.
Due to geographic proximity and religious affinity, Pakistan soon became one of the major
sources of labour for the Middle East. Coinciding with the oil price hike in 1973 and the economic
boom in the Middle East, there was a sizable emigration of unskilled and semi-skilled workers.
During 1975–1982, this exodus absorbed almost 25 per cent of the incremental labour force, thus
providing a safety valve for lowering emigration pressure.
Short-term migrants with an average stay of about five to six years generally sent hefty remit-
tances. The Pakistani government, therefore, put in place an organizational apparatus to streamline
the recruitment and registration of these emigrants, and also made efforts to improve the popula-
tion’s skill set, based on those assumed to be in demand in the Middle East. Unfortunately, fewer
than half of the emigrants used official channels to go abroad, thereby complicating the task of
discerning the time trend of the Pakistani exodus.
In the context of international migration stock of Pakistan, the post crises variations clearly
reflect the slump after 2010 till 2018. Total immigration stock cuts down from 3,941,586 in 2010
to 3,628,956 in 2015, a fall by 7.93% and to 3,398,200 in 2018 a drop of 6.34% compare to 2015
and 14% with reference point of 2010. In Pre-crises environment in Pakistan’s international migra-
tion stock sprouts by 24.30% in 2010, equating with that of 2005 with the total stock of 3,171,132
personnel. An extended situation from 1960 to 2018 is presented as in Figure 1a.
Similarly, taking into account the annual flow of Pakistan’s emigrants through the BEOE statis-
tics (Bureau Of Emigration and Overseas Employmnet, 2018). There is an increasing pattern of
20 Javed, Shaukat and Ahmad
©2020 The Authors. International Migration ©2020 IOM
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