Home remittances

Editorial of Business Recorder 8-01-2010

Encouraged by a steep increase in home remittances in the recent past, authorities of the country have been taking several measures to increase such flows to narrow the gap in the external sector. In order to further facilitate banks and beneficiaries of home remittances under the recently launched Pakistan Remittance Initiative (PRI), the State Bank on 4th January, 2010 reduced the timeliness for payment and settlement of home remittances, in view of the problems faced by banks in crediting beneficiary accounts on the same day due to time and resource constraints. According to the SBP circular, new timeliness for the first batch would be remittances received upto 0900 hours that potentially cover remittances from countries within the time zone of the US, partially Europe and the Middle East, whereas the second batch would be referred to remittance transactions that potentially cover remittances from the countries within the time zone of the Middle East and Europe. After the successful implementation of the new payment system's architecture, home remittances will be credited in one-hour time to the beneficiary's accounts and the timeliness for the two batches will be reduced to 1100 hours and 1500 hours, from 1200 hours and 1600 hours respectively.
It is good to see that the SBP and commercial banks are adopting innovative ways to increase the inflow of remittances. Although, it is very difficult to quantify the overall impact of the latest measure on the level of remittances, yet, any increase, even if it is marginal, due to the new initiative would be welcome because of the current problems in the country's external sector. In fact, without substantial improvement in home remittances in the recent past, Pakistan's current account deficit would have been much larger and its foreign exchange reserves at a much lower level. In this context, it would be in order to also give due credit to the helpful role played by the banking community. It was definitely not easy for them to change their bureaucratic attitude and compete successfully with a highly organized informal sector, which had perfected its tools over time to operate on very thin margins and in a very efficient and speedy manner to attract clients in the overseas market. Their success rate could be gauged from the fact that Allied Bank, Habib Bank, KASB Bank, MCB Bank, National Bank of Pakistan and United Bank that are currently part of the PRI mechanism, have settled around 100,000 inter-bank transactions worth Rs. 6.2 billion during the last two months. Hopefully, the latest circular of the SBP would further facilitate the banks as well as the recipients of home remittances. Also, Bank Alfalah and JS Bank are expected to join the PRI mechanism soon. The shift to modernity and the provision of quicker service, in our view, was definitely a step in the right direction.
However, it needs to be highlighted that the latest measure taken by the State Bank, in fact the whole idea of Pakistan Remittance Initiative, centres around the provision of a high level of convenience and comfort to the households receiving home remittances from abroad. In our view, there are other more potent factors determining the level of remittances through the banking channels, which include the difference in the exchange rates offered in the official and informal markets, employment of Pakistanis in foreign countries and their income levels, and investment opportunities and political conditions back home. We expect that the government will also continue to keep a close watch on all these factors and try to immediately remove any impediments which could retard the present buoyant trend in home remittances.