Pakistan to amend remittance schemes to boost foreign reserves

Pakistan's Economic Coordination Committee (ECC) on Thursday approved changes to remittance schemes to increase inflows and boost the country's foreign exchange reserves.

The ECC meeting, which was chaired by Finance Minister Muhammad Aurangzeb in Islamabad, decided to change the rate of the Reimbursement of Telegraphic Transfer (TT) Charges Scheme.

The scheme aims to eliminate the cost of remittance transactions for both the sender and receiver for amounts exceeding $100. Authorized dealers receive a uniform amount of incentive for eligible transactions, which is shared between Pakistani banks and overseas remitting Financial Institutions.

Last year, this incentive rate was increased to SAR 30 from an earlier rate of SAR 20. According to the State Bank of Pakistan (SBP), the revision had a positive impact on the scheme's performance.

To further optimize this performance, the ECC approved the Finance Division's proposal to divide the flat reimbursement rate of SAR 30 per eligible transaction. Now, a fixed reimbursement rate of SAR 20 will be applicable for all eligible transactions of $100 and above while an additional variable reimbursement rate of between SAR 8 to SAR 15 will be linked to the incremental rise in home remittances.

Thus, higher performing banks would progressively receive larger rewards i.e. up to SAR 28 or SAR 35 per eligible transaction (as the case may be) on its incremental volumes over the previous year.

The ECC also approved changes to the Incentive Scheme for Exchange Companies (ECs), which incentivizes them for surrendering 100% foreign exchange in the interbank market at the rate of PKR 1 against each $1 mobilized.

The fixed incentive rate of PKR 1 will be increased to PKR 2 per dollar mobilized while an additional variable incentive rate of up to PKR 2 per dollar will be linked to linked to the incremental growth in remittances.

These schemes will boost the country's foreign reserves which stand at $9.4 billion as of August 23, according to the SBP.