Pakistan central bank introduces incentive for exchange companies to boost remittances

The State Bank of Pakistan (SBP) announced a revised incentive structure on Tuesday to encourage Exchange Companies (ECs) to enhance their home remittance mobilization efforts.

Under the new structure, ECs will receive a base rate of PKR 2 for each USD of home remittances surrendered to SBP-designated banks.

Additionally, ECs will be paid PKR 3 for each incremental USD surrendered for growth in home remittances up to 5% or USD 25 million, whichever is lower, compared to the previous year. For incremental remittances above 5% or over USD 25 million, ECs will receive PKR 4 per USD.

The SBP will evaluate the performance of ECs on a monthly basis and reimburse payments accordingly, with any necessary adjustments made in the last quarter of the fiscal year. These revisions will take effect from October 1, with operational instructions to be communicated separately.

Malik Bostan, Chairman of the Exchange Companies of Pakistan, highlighted that exchange companies surrendered $4 billion last year, which he termed a record amount. With the new incentives, he expects this figure to rise to $5-6 billion in the current fiscal year.

Bostan praised the decision, stating it would increase foreign exchange reserves and strengthen the local currency.

The ECAP chairman also noted that banks receive a rebate of PKR 20 per dollar and that exchange companies had been seeking similar incentives.

He suggested that incentives should also be provided for foreign currency exports to discourage black tactics.

Remittances have become a cornerstone of Pakistan’s economy, particularly in light of the country’s historically lackluster export performance. For example, in the first quarter of fiscal year 2003-04 (FY04), Pakistan’s quarterly remittances were $0.9 billion, while exports were significantly higher at $3.0 billion, a ratio of 3.3 times the size of remittances.

However, a decade later, by the fourth quarter of FY24, this dynamic shifted dramatically, with quarterly remittances soaring to $9.2 billion, surpassing exports of $8.0 billion, resulting in a ratio of 0.9. This change underscores the increasing significance of remittances as a stable and vital source of foreign exchange for the country.