Foreign exchange companies' concerns

Foreign exchange companies have almost become a permanent feature of the foreign exchange market in Pakistan. It is believed that they perform a useful function by facilitating the sale and purchase of foreign currencies among citizens residing in the country and abroad. The rates at which they buy and sell the foreign exchange, called open market rates, are also somewhat different from the inter-bank market rates, with the open market usually offering slightly higher rates than those by the inter-bank. Overtime, however, they have formed a strong lobby known as the Forex Association of Pakistan (FAP) to protect and preserve their interests and put forth their viewpoints concerning the market. In a meeting with Dr Hafeez Shaikh, Advisor to the PM on Finance, the FAP's representatives led by their President, Malik Bostan, were assured that representatives of SBP will accompany FIA teams during surprise visits to exchange companies and entire inspections will be conducted in their presence. During the meeting, FAP also suggested a rebate scheme for exchange companies for higher inflows of home remittances. "Presently, Pakistani banks with alliance of some 170 international money transfer companies are carrying dollar 10 billion inward home remittances and the government is paying Rs 6 per transaction to these banks, while exchange companies are not paid a single penny for bringing home remittances," Malik Bostan has been quoted as saying.
The FAP representatives also suggested certain other measures to improve the foreign exchange market of the country. They said that smuggling of dollar to Afghanistan and Iran is a serious issue and government agencies should take strict action against elements who are involved in foreign currency smuggling. The government should also take over the goods of importers who are involved in under-invoicing. Besides, people travelling abroad are carrying dollar 6 million per day. The limit of foreign currency for such people should be revised downward.
We feel that the demands of FAP are well articulated but self-serving to a certain extent, without much regard for the interest of the country or the welfare of their clients. We don't know exactly what is the complaint or accusation of FAP against the FIA but it was certainly their long-standing demand that representatives of the SBP should accompany the 'raiding' FIA teams. Although the benefit of such an arrangement is not very obvious, it is good to see that the FAP is happy about the acceptance of their demand. It is quite possible that they hope to be more comfortable in the presence of SBP representatives who are expected to be more upright and let the inspections to be conducted strictly according to the rules. So far their demand for granting of a rebate scheme comparable to the banks is concerned, it would put extra burden on the government budget which is already under a great deal of stress. Anyhow, in an environment in which exchange companies are already reported to be making handsome profits, such a demand seems to be unwarranted. Malik Bostan has also underscored the need for imports from China under the currency swap arrangement because "the government can save dollar 15 billion by implementing currency swap arrangement." We don't know how such a large amount in foreign exchange could be saved because China enjoys a huge surplus in trade with Pakistan which ultimately has to be paid by Pakistan in a foreign currency.
As emphasised by FAP, smuggling of the US currency from Pakistan to Afghanistan and Iran is of course a serious issue and needs to be investigated thoroughly though we know that the solution of this problem is difficult because of a weak border control and the illegal freedom of movement between all the three countries. Importers involved in under-invoicing also need to be checked and punished properly although the punishment should not be necessarily in the form of confiscation of goods as suggested by the FAP. The complaint of the FAP that people travelling abroad are carrying dollar 6 million per day appears to be an overestimate but cannot be confirmed because of the non-existence of such an estimate. The limit of dollar 10,000 per person for people travelling abroad, however, needs to be reduced as suggested by the FAP, keeping in view the low level of foreign exchange reserves of the country and heavy deficit in the external sector accounts.