Boosting remittances

One of the main sources of foreign exchange earnings is remittances. It is good that the present government is trying to increase the level of home remittances to reduce the current account deficit of the country. In order to further facilitate overseas Pakistanis, the Prime Minister has now allowed the SBP and banks to implement Business to Customer (B2C) and Customer to Business (C2B) transactions through foreign correspondent entities under their existing (home remittance) agency arrangements. As regards B2C transactions, freelance and Information System Services are allowed up to dollar 1500 per individual per month. Transaction services other than computer and information services are also allowed to transact up to dollar 1500 per individual per month while pensioners could receive up to Rs 250,000 per individual per month. For C2B transactions, direct payments from overseas Pakistanis can be received to pay for utility bills, education fees of Higher Education Commission's accredited institutions, super stores, insurance companies, credit card payments, etc.

At the same time remittances received by reputed real estate builders and housing societies from overseas Pakistani individuals on account of purchase of property such as residential and commercial houses, plots and flats are also allowed the facility except remittances for equity/participation in an enterprise. The Prime Minister also accorded approval to incentive payment by the government on Mobile Wallet use to the tune of Rs 2 on each transaction of dollar 1 remittance that was previously Re 1. Exchange companies and ADs who bring in 15 percent more remittances than the previous financial year will also have the incentive of PKR1 against each dollar 1. Along with these incentives, certain terms and conditions have also been prescribed to ensure that foreign correspondent entities have a robust infrastructure and the capacity to comply with legal/regulatory requirements pertaining to AML/CFT. Banks have been advised not to execute transactions with entities that fail to fulfil AML/CFT requirements. Banks have also been directed to ensure that the amount of remittances is credited within a certain timeframe. In case the amount of remittance is not credited within the timeframe, the beneficiaries will be entitled to a compensation of 65 paisa per thousand rupees per day on account of delay.

The PTI government's decision to facilitate overseas Pakistanis for easing and incentivising home remittances through legal channels is justified on the ground that C/A deficit of Pakistan has reached unsustainable levels and the country is almost on the verge of insolvency. Home remittances are important because these are now almost equal to the export proceeds of the country and their impact on C/A is overpowering. Workers' remittances which had increased marginally by 1.4 percent to dollar 19.6 billion in FY18 are again on the up during the current year but need to be increased sharply to narrow or eliminate the huge external gap. In the past, Pakistan Remittance Initiative (PRI), a joint initiative by the SBP and Ministries of Finance and Overseas Pakistanis, was launched to incentivise Pakistanis to send remittances through banking channels but this initiative seems to have lost its steam.

During FY18, two policy initiatives were undertaken, i.e., Asaan Remittance Account and the promotion of home remittances through M- wallets which could help boost the remittances. Asaan Remittance Account was meant to encourage beneficiaries to receive remittances in a secured banking environment while M-wallets was aimed at increasing financial inclusion along with the reduction in the cost of delivery. It is a welcome move that the PM has also directed the concerned ministries and departments to work out further incentives so as to attract remittances through legal channels. In our view, future steps should revolve around equalisation of official and unofficial rates of Pak rupee vis-a-vis other currencies and increasing the speed and ease with which expatriates can send their remittances back home.