Rs25 billion allocated for attracting US dollars

Overseas Pakistanis will be encouraged to send money via banks

KARACHI: The government has allocated Rs25 billion for providing incentives to attract the inflow of US dollars from overseas Pakistanis in a bid to replenish the country’s foreign currency reserves, which is a must to win the war against the coronavirus and revive economic growth.

“Under various initiatives to improve foreign remittances through banking channels and build up foreign exchange reserves, an amount of Rs25 billion ($151.5 million) has been allocated,” Federal Minister for Industries and Production Hammad Azhar said while unveiling the budget for the next fiscal year, starting July.

The government has created around one million overseas jobs for Pakistanis, which has helped in increasing remittances. The remittances rose 6.25% to $17 billion in first nine months (July-March) compared to $16 billion in the same period of previous year, he said.

“However, the global health crisis Covid-19 has badly affected exports and remittances,” the minister said.

Pakistan had projected the inflow of $24 billion worth of remittances in FY20 before the health crisis struck the country and the world. They are now estimated to be around $22 billion.

“The government has announced a package to attract higher remittances through banking channels a couple of months ago…in response to the Covid-19,” Ministry of Finance Director-General for Media Hamid Raza Khan told The Express Tribune.

The government allocated funds to utilise the instruments already in place and to encourage foreign and local banks as well as currency dealers to play their role in attracting higher remittances, he said.

As per details of the package, the government has increased profit margins of international and domestic commercial banks and currency dealers on bringing workers’ remittances through legal channels like banks and currency dealers.

The government has doubled the fund transfer fee to 20 Saudi riyals (around $5) to be paid to the international fund transfer firms on transactions amounting to $100-200 for Pakistan.

“The rebate of reimbursement of TT (telegraphic transfer) charges transactions between $100 and $200 will be increased from 10 SAR (Saudi riyals) to 20 SAR,” said the finance ministry.

Earlier, the charges were paid on transactions of a minimum of $200. Now, the minimum amount that will attract transfer charges has been reduced to $100 considering that Pakistani expatriates may send smaller amounts back home to cope with these testing times in foreign countries.

The measure will not only mitigate the risk of a drop in workers’ remittances but will also address the concern of international watchdog Financial Action Task Force (FATF) since the doubling of the transaction fee is primarily aimed at controlling illegal transactions.

Workers’ remittances play a significant role in easing the pressure of foreign debt repayment and import payments since export earnings remain insufficient and cannot meet international payment obligations.

Earlier, Pakistani expatriates were believed to have sent $7-8 billion a year through illegal channels of Hundi/Hawala as they offered a better rupee-dollar exchange rate and charged no transaction fee, according to officials.

Pakistani banks and currency dealers bring remittances through about 170 international money transfer firms.

“As per the incentive scheme, financial institutions will get Rs0.50 per $1 on 5% growth in remittances, Rs0.75 per $1 on 10% growth and Re1 per $1 on 15% growth,” according to the Ministry of Finance.

Earlier, there was only one incentive - Re1 per $1 on growth of over 15% in remittances over the previous year.

“The remittances transferred into bank accounts will be exempt from withholding tax with effect from July 1, 2020,” said the incentive package.

The National Remittance Loyalty Programme would be launched from September 1, 2020, in collaboration with major commercial banks and government agencies, through which various incentives would be given to remitters through mobile apps and cards, the ministry added.

Pakistan received remittances worth $20.7 billion in first 11 months of the outgoing fiscal year, which was 2.7% higher than $20.1 billion received in the same period of previous year, according to the State Bank of Pakistan (SBP).

However, the country’s foreign currency reserves dropped to $10.09 billion in the week ended June 5 compared to $12.07 billion two weeks ago. It was mainly due to foreign debt repayment.

SBP Governor Reza Baqir said the other day that reforms helped to improve the foreign currency reserves to more than $10 billion by the time Covid-19 emerged in late March in Pakistan.

“Had this significant improvement not taken place and if Covid-19 would have emerged in June 2019 when our net (buffer reserves) position was zero, our situation would have been hugely worse than at present,” he said.

Published in The Express Tribune, June 14^th, 2020.

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