PBA refutes claims subsidies serve no purpose

Says incentive schemes like PRI critical for economic stability

KARACHI:

The Pakistan Banks Association (PBA) has strongly rejected "misleading assertions" in recent press coverage, suggesting that government subsidies to banks under remittance incentive schemes serve no economic purpose.

"Such narratives dangerously undermine public confidence at a time when Pakistan's financial stability depends on robust formal remittance flows," the association said in a statement.

It recalled that when the Pakistan Remittance Initiative (PRI) was conceptualised in 2008, formal remittances stood at only $6.5 billion, while an estimated $20 billion flowed through undocumented Hawala/Hundi channels, exacerbating balance of payments pressures.

The PRI, launched in 2009, was a homegrown solution to shift flows to formal banking channels, offering an initial incentive of SAR 20 per transaction, approximately 2.25% of the average $500 transaction, which was far more viable than foreign borrowings carrying interest rates above 3.5% plus long-term repayment obligations and exchange rate risks. In contrast, PRI incentives are one-time PKR payments with no repayment liability, making them a strategic win-win for Pakistan's economy, the PBA said.

According to the association, banks do not profit from these incentives. In reality, they bear enormous costs to remain competitive, offering higher rebates and forex premiums to money transfer operators and remitters abroad. "These costs are only partially offset by government incentives, with the remainder absorbed by banks to maintain essential liquidity for import payments and economic stability."

Allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion are baseless, it stressed, adding that banks operate under strict SBP regulations, AML/CFT frameworks, and independent audits. "The classification of freelancer and IT exporter earnings as remittances is a policy classification issue needing regulatory clarity, not bank misconduct."