ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Thursday approved revisions to the two Remittances Incentive Schemes including Incentive Scheme for Exchange Companies (ECS), expecting to further incentivize banks and exchange companies to increase remittance inflows, thereby boosting the country’s foreign exchange reserves.
Federal Minister for Finance & Revenue Senator Muhammad Aurangzeb chaired a meeting of ECC of the Cabinet here on Thursday.
ECC considered a summary of Finance Division regarding “Proposal for Revision in Home Remittances Incentive Schemes”. As per the Finance Division proposal submitted to the ECC, in order to incentivize remittance inflows through formal channels, government of Pakistan, through the SBP and Pakistan Remittance Initiative (PRI), has been implementing various Home Remittances Incentive Schemes.
Remittance incentives revision will top ECC agenda today
To make incentives more attractive for the remitters, their beneficiaries and the Financial Institutions involved in the process, revisions were made in the Schemes in the year 2023. Remittance inflows witnessed consistent growth during fiscal year 2024 registering a positive cumulative growth of around 10.7% YoY, totalling to USD 30.3 billion as compared to inflow of USD 27.3 billion recorded in fiscal year 2023.
SBP has now proposed revisions in two Home Remittances Incentive Schemes. These Remittance Incentive Schemes were launched with the approval of ECC/ Cabinet; therefore, the changes in contours of the schemes, as proposed by the SBP, are being placed before the ECC for approval. Gist of existing contours of these 2 Schemes and proposed revisions along with rationale are detailed as follows:
(i) Reimbursement of Telegraphic Transfer (TT) Charges Scheme:
TT Charges Scheme, launched in 1985, aims at remittance transactions that have zero cost on the sender and the receiver/ beneficiary in Pakistan on transactions exceeding USD 100. The Authorized Dealers (ADs) receive a uniform amount of incentive for eligible transactions; which is shared between Pakistani Banks and overseas remitting Financial Institutions (FIs). Last year, the incentive rate was increased to SAR 30 from an earlier rate of SAR 20 with the approval of ECC. According to SBP, the revision had positive impact on the Scheme’s performance and to optimize its effectiveness following revisions have further been proposed:
The flat reimbursement rate (SAR 30) per eligible transaction may be bifurcated into Fixed and Variable Components, with the later linked to the incremental rise in home remittances. For the Fixed Component, a reimbursement of SAR 20 will be made for all eligible transactions of USD 100 and above. For Variable Component, additional reimbursement of SAR 08, per incremental eligible transaction, will be made for upto 10% or USD 100 million growth in remittances over previous year (whichever is lower). Further, additional reimbursement of SAR 07, per incremental eligible transaction, will be made for growth exceeding 10% or USD 100 million.
Thus, higher performing bank viz-a-viz remittances inflows 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. This performance would be evaluated by SBP on a monthly basis and payments would be reimbursed accordingly. Any required adjustment in payments, on a consolidated basis, would be made in the last quarter of fiscal year.
SBP is of the view that the proposed revision presents substantial motivation for the banks to maximize their efforts to increase remittance inflows and may also lower the cost of TT Charges for the Government on an aggregate basis.
(ii) Incentive Scheme for Exchange Companies (ECs):
The Scheme, launched in 2022 with the approval of ECC, aims at incentivizing Exchange Companies for surrendering 100% foreign exchange in interbank market at the rate of PKR 1 against each USD mobilized thereof.
The flat rate is proposed to be divided into Fixed and Variable
In the Fixed Component the base rate is proposed to be increased from PKR 1 to PKR 2 per USD surrendered in the interbank market to SBP designated bank(s). For Variable Component, PKR 3 may be paid per USD against incremental remittances upto 5% or USD 25 million (whichever is lower). Further, PKR 4 per USD may be paid against incremental remittances above 5% or over USD 25 million.
The payment of incentive may be made subject to surrender of FX by ECs in SBP’s designated bank(s), as per the percentage prescribed by SBP. Their performance would be evaluated by SBP on a monthly basis and payments would be reimbursed accordingly. Any required adjustment in payments, on a consolidated basis, would be made in the last quarter of FY.
As conveyed by SBP, this revision seems promising in motivating the ECS to mobilize higher home remittances for the country and would cover a portion of their operating cost that has increased due to PKR depreciation in the last couple of years. Foregoing in view, approval of the Economic Coordination Committee (ECC) of the Cabinet is solicited for revisions, as proposed by SBP, in the two Remittances Incentive Schemes.
Copyright Business Recorder, 2024
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