Incentives for Banks to grow remittances - can they?

September 22, 2023 (MLN): Remittances decline of $4 billion last year was a much bigger disappointment than perpetually low export growth. Many ascertained the reasons and eventually blamed it on dwindling political and economic uncertainty.

Some cited lower PkR expenses of the family and poor returns in real estate as well. 

Hence, GoP has sprung into action to incentivize banks to bring back more. The reward for bringing 5%, 5-10% and more than 10% is set at Rs 1,2 and 3/USD respectively.

Previously the incentives were Rs 0.5, 0.75 and 1 respectively. Also, the reimbursement of TT charges rate is increased to SAR 30/$100 (from SAR 20). 

Cherry on the top is the administrative controls that have brought in the open market rate from PKR 335/USD to PKR 292/USD.

The reduced spread between the open market and interbank with the flush of liquidity with exchange companies is a welcome surprise. Remitters are using lesser hawala/hundi (grey market) as the rates have dwindled after authorities have become aggressive. 

Whether remittances cross the $31bn achieved remains a question. Assuming the country remains in low growth coupled with a real estate boom, we may see remittances supporting the economy again.

Nevertheless, given the pessimism and high rate of emigration/desperation, by 2030 remittances could touch $40bn.

If only exports grew at twice the rate of remittances, Pakistan would have been a much more prosperous country to live and invest in.

The author is an independent economic analyst and writes on Twitter and Linkedin.