State Bank of Pakistan (SBP) seems to be making further efforts to increase the flow of home remittances in order to reduce the huge deficit in the external sector of the country. According to a circular issued by it on 17th December, 2018, in order to encourage domestic banks/micro-finance banks/exchange companies providing home remittances disbursement services, a performance-based scheme has been developed to enhance their marketing/promotional/awareness efforts for home remittances’ products and services. As per the new scheme, Re 1 per each incremental USD will be paid if home remittances of a financial institution exceeded by 15 percent in FY19 compared with the level achieved in FY18. Financial institutions will be required to submit details of execution of their marketing/promotional/awareness activities once they qualify for the scheme. They will be reimbursed the calculated amount at the end of the scheme year, based on actual performance assessment by the SBP. A special onsite inspection may be conducted by the SBP to monitor the scheme. In addition, SBP has also made amendments in existing instructions to further facilitate banks to promote home remittances through Branchless Banking Channel (BBC). As per the amendment, the incentive of airtime was increased to Rs 2 against each USD received through M-Wallet. Besides, the authorised financial institutions can also use single account for both home remittances and inland transactions. The scheme will be initially for one year and the entire expenses of the scheme will be borne by the government of Pakistan.

There is no doubt that the above scheme has been introduced by the SBP keeping in view the potential of home remittances in narrowing the C/A deficit and the inability of the country to mobilise a higher level of foreign investment and reduce the trade deficit substantially during the current year. The level of exports of the country is now so poor that entire receipts from this source are almost equal to the amount of home remittances received in a year. During the current year so far, while home remittances have increased by dollar 1.007 billon or 12.5 percent to dollar 9.028 billion, Foreign Direct Investment (FDI) has plunged by 35 percent to dollar 881 million during July-November, 2018 compared with dollar 1.359 billion in the corresponding period of last year despite the best efforts of the authorities to woo foreign investors. It may be mentioned that the newly-introduced incentive scheme is on top of some other initiatives already in vogue. For instance, Pakistan Remittance Initiative (PRI), a joint initiative launched by SBP, Ministry of Finance and Overseas Pakistanis, is already in place. Instructions were also issued by the SBP for the opening of Home Remittance Accounts for the promotion of home remittances through branchless banking. Authorities of the country are also now cracking down hard on exchange companies engaged in the business of money laundering and the SBP is regularly monitoring the data on inward and outward flows of foreign exchange beyond a certain limit. Nonetheless, it is difficult to gauge the net impact of the latest initiative of the SBP, precisely on the ground that the present incentive scheme could only result in developing the marketing/promotional efforts of the financial institutions and would in no way benefit the parties sending or receiving the home remittances. As such, financial institutions could expand their propaganda efforts but expatriates may not be very much tempted to send their money through this source and continue to use hawala or hundi, especially if the difference in the open and interbank rates is wide. In our view, it would be more useful if the two rates are kept as close as possible and efforts are also made to send more Pakistani workers abroad. It is good to see that the present government is trying to send almost 100,000 Pakistani workers to Qatar. Since our government is enjoying cordial relations with most of the other countries in the Middle East, it could also try to persuade these countries to spare the livelihoods of our workers in their countries and, if possible, to recruit more workers from Pakistan. Such a need is more urgent in the case of Saudi Arabia where substitution of Pakistani workers in the local labour force is said to be taking place. Incidentally, the new scheme may also have fiscal implications that will need to be worked out for prudent fiscal management.