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Express Tribune
a day ago
- Business
- Express Tribune
ECC for rationalising remittance incentives
Listen to article The country's economic managers have called for rationalising home remittance incentive schemes in a bid to ease their cost burden on the government. In a recent meeting of the Economic Coordination Committee (ECC), it was emphasised that a proper analysis of the incentive schemes needed to be made before any final decision could be taken on discontinuing them. ECC members reached consensus that a proper transition plan should be drawn up in case it was agreed to gradually phase out such incentives since it could result in behavioural change. The Finance Division briefed the ECC that the government had undertaken five initiatives to incentivise remittances, which were being executed by the State Bank of Pakistan (SBP) and the Pakistan Remittance Initiative. The TT (telegraphic transfer) Charges Scheme is a flagship remittance incentive, which offers a zero-cost/free transfer model to the sender and receiver for the eligible remittance transactions. The current incentive model, approved by the ECC in August 2024, provides 20 Saudi riyal (SAR) reimbursement incentive for every transaction worth $100 and above, an additional per-transaction incentive of up to 10% of $100 million growth over the previous year, and a further per-transaction incentive of SAR 7 for growth exceeding 10% or $100 million over the previous year. The SBP apprised the committee that home remittances received during July-May of fiscal year 2024-25 touched $34.9 billion, exhibiting an increase of 28.8%, or $7.8 billion, compared to the same period of FY24. With that momentum, the SBP expected the remittances to touch an unprecedented level of $38 billion by the end of June 2025. However, with increased inflows, the corresponding cost/budgetary requirement rose exponentially. In FY25, the total cost of remittance incentives exceeded Rs200 billion, resulting in per-quarter cost of Rs50 billion for the government. Of the total cost, around 85%, ie, Rs170 billion (Rs42.5 billion per quarter), was under the TT Charges Scheme. To rationalise the cost, the SBP has proposed changes in contours of the TT Charges Scheme, which include revising the minimum eligible transaction threshold from the existing $100 to $200 and the corresponding rebate from the existing variable rates to a flat rate of SAR 20 per eligible transaction. In addition, the SBP has proposed that the Exchange Companies Incentive Scheme may be merged with the TT Charges Scheme, whereas the Marketing Incentive Scheme may be discontinued from FY26. The SBP, while highlighting the risk of some deceleration in remittances, was of the view that their proposals were likely to result in a significant cost reduction to Rs88 billion in FY26 as compared to Rs206 billion in FY25. Furthermore, "to ensure lower costs, the revisions should become effective and be announced with effect from July 1, 2025; otherwise, the market may assume the continuation of the existing rates and features of the schemes." Keeping in view the above proposals, the ECC's approval was solicited. To make such payments to banks, aggregators and exchange companies, it was highlighted that the Finance Division may chalk out a mechanism in consultation with the State Bank. It was also suggested that a mechanism may be established for gradually phasing out the Remittance Incentive Schemes. In that regard, the SBP would propose and present an evidence-based plan by factoring in the cost-benefit analysis of the existing schemes, Raast integration with Buna and SAMA gateways, and strengthening controls vis-a-vis transfer of remittances through formal channels. The ECC considered a summary titled "Proposal for Changes in Home Remittances Incentive Schemes" and approved the proposals with the directive that the Finance Division and State Bank would conduct a thorough impact and sensitivity analysis and would present a comprehensive transition plan for phasing out such incentive schemes.
Business Recorder
2 days ago
- Business
- Business Recorder
Remittances: govt set to withdraw some incentives
ISLAMABAD: The federal government is all set to do away with some incentives extended to overseas Pakistanis to remit money through legal channels, sources told Business Recorder. On June 27, 2205, Finance Division briefed the ECC that the government of Pakistan has five Remittance Incentive Initiatives being executed by the State Bank of Pakistan (SBP) and Pakistan Remittance Initiative (PRI). The TT Charges Scheme is the flagship remittance incentive initiative of the government that provides zero cost/ free send model for sender and receiver on eligible remittance transactions. The current incentive model of the scheme approved by the ECC in August 2024 offers reimbursement/ incentive of Saudi Riyal (SAR) 20 for every transaction of $100 and above; an additional, per transaction incentive of SAR 8 for up to 10 percent or $100 million growth over the previous year (whichever is lower); and further per transaction additional incentive of SAR 7 for growth exceeding 10 percent or $100 million over the previous year. Exchange cos welcome their inclusion in PRI SBP apprised that the volume of home remittances received during CFY (July- May) has touched the level of USD 34.9 billion, exhibiting an increase of 28.8% or around $ 7.8 billion compared to the same period of FY 24. With this momentum SBP expects home remittances to touch an unprecedented level of $38 billion by end June 2025. However, with this increased inflow, the corresponding cost/ budgetary requirement also increased exponentially. In FY 2025, the total cost of remittance incentive initiatives, exceeded Rs.200 billion, incurring a cost of approximately PKR 50 billion to the GoP/ quarter. Out of this, around 85% of the expense; i.e., PKR 170 billion (Rs.42.5 billion per quarter) was incurred under the IT Charges scheme. To rationalise the cost, SBP has proposed changes in contours of TT Charges Scheme which includes revising the minimum eligible transaction threshold from the existing $ 100 to USD 200 and the corresponding rebate from the existing variable rates to a flat rate of SAR 20 per eligible transactions. In addition, SBP has proposed that the Exchange Companies (ECs) Incentive Scheme may be merged with the TT Charges Scheme whereas the Marketing Incentive Scheme (MIS) may be discontinued from FY 2026. The SBP, while highlighting risk of some deceleration in remittances, is of the view that their proposal is likely to result in a significant cost cut down to Rs 88 billion in FY 26 as compared to Rs 206 billion in FY 25. Further, it is imperative that to ensure the cost cut, the revisions become effective from July 1, 2025; otherwise, the market may assume continuation of existing rates and features of the Schemes. Foregoing in view, approval of the ECC was solicited for the following proposals by the SBP: (i) The minimum size of eligible transaction under the TT Charges Scheme may be revised from the existing $100 to $200 from July J01,2025 and the corresponding rebate may be revised from the existing variable rates to a flat rate of SAR 20 pet eligible transactions; (ii) Exchange Companies Incentive Scheme (ECIS) may be merged in IT Charges Incentive Scheme and the existing ECIS may be discontinued from July 1, 2025; (iii) Marketing Incentive Scheme may be discontinued from July 1, 2025; (iv) to meet the expenditure of such payments to Banks/ aggregators/ Exchange Companies, Finance Division may chalk out a mechanism in consultation with SBP; and (ii) a mechanism for gradual phasing out of Remittance Incentive Schemes may be chalked out. SBP is tasked to propose and present an evidence-based plan factoring in cost- benefit analysis of the existing schemes- Raast integration with Buna and SAMA gateways and strengthening of controls vis-à-vis transfer of remittances through formal channels. During the ensuing discussion, it was pointed out that there is a need to rationalise the incentives being given on remittances as these could create distortion. It was also observed that the proper analysis of discontinuation of the incentives schemes needs to be made before any final decision can be made to discontinue such schemes. ECC was of the consensus view that proper transition plan needs to be made in case it is decided that such incentive schemes for remittances are to be gradually phased out since there is a behavioural change involved in it. After detailed discussed, the ECC approved the proposal with the direction that Finance Division and State Bank of Pakistan will conduct a thorough impact and sensitivity analysis regarding the proposed scheme and to present to the ECC a comprehensive transition plan for the gradual phasing out of such incentive schemes. Copyright Business Recorder, 2025
