Initiative seen to boost remittances to record $20 billion.
Home remittances sent by overseas Pakistanis are projected to rise beyond the annual historic high of $20 billion by the time financial year 2017-18 closes on June 30. At the same time, Pakistanis across the globe will be delighted to see the government’s launch of new, high-profit dollar bonds in and around mid-May, top-level official in the Ministry of Finance told Khaleej Times.
Overseas Pakistanis seem to be responding positively to the recent devaluation of the rupee by 5 per cent, which adds up to 10 per cent when totalled with a similar 5 per cent devaluation in December 2017. Bankers, economists and MoF officials projected “the rise of remittances to $20 billion, and even beyond as overseas Pakistanis are traditionally are expected to send more cash to their families with the advent of the holy month of Ramadan and Eid Al Fitr”. The amount in the past has hovered around $19 billion annually.
The State Bank of Pakistan has reported that remittances from Pakistanis working abroad increased 3.55 per cent to $14.606 billion in the 9 months to March of the current fiscal year 2017-18. The uptick in remittances in March witnessed the overall impact of the total rupee devaluation of 10 per cent, as the dollar climbed to Rs117 in the open market on April 18. Why so?
Malik Bostan, president of the Forex Dealers Association of Pakistan, said the demand for dollars is high as undeclared and untaxed money is being invested in the US currency.
The government has set June 30 as the deadline for declaring all foreign currency and assets, at home or abroad, as part of its ‘tax and foreign assets’ amnesty for Pakistanis living overseas and at home. To do so, they have to pay a small percentage of the amount, which will make it legal, open and usable in the future.
The buying rate for the dollar on April 18 was Rs116.70 and it was selling for Rs117 in the open market. This was the highest rate for the greenback, since the market-related depreciation of the rupee started with 5 per cent in December 2017-18 and another 5 per cent in March. In the interbank market, dollars were being bought for Rs115.55 and selling for Rs115.65.
The March inflow of remittances originated from all countries, except Saudi Arabia. The SBP said the amount remitted to Pakistan in 9 months – July-March of fiscal year 2017-18 – was $3.691 billion from Saudi Arabia, $3.265 billion from the UAE, $2.031 billion from the UK, $1.948 billion from the US, $820 million from Malaysia, $479 million from the EU and $724 million from all other countries; those in Bahrain, Kuwait, Oman and Qatar collectively sent $1.648 billion during the period. Total remittances for 9 months stood firm at $14.606 billion compared to $14.105 billion in same period of 2016-17.
The government is eagerly looking to a larger inflow of home remittances in order to fill its widest current account deficit in history.
“I know that I will have to face the music from an angry opposition at the time of national elections, which are due in less than 8 weeks, if the current account deficit is not narrowed. That’s why I am appealing to all overseas Pakistanis to send as much as they can to help their homeland,” said Prime Minister Shahid Khaqan Abbasi.
In the first 7 months of 2017-18, the current account deficit widened 48 per cent to $9.15 billion. It is still rising and is projected to grow further by June 30. This has happened on the back of increasing international oil and commodity prices, growing overall imports of food, including Western-style packaged food, and equipment required by the ongoing implementation of the $61 billion China Pakistan Economic Corridor. This is in spite of the fact that exports, which stayed stagnant at $20 billion a year for the last 4 years, have started going up in 2017-18.
“We are quite sure the year 2017-18 will end with exports rising to $25 billion,” projects Commerce Minster Pervez Malik while talking to Khaleej Times. “We are redoubling our efforts to cut down imports and to raise exports, through several steps including providing export incentive and to reduce cost of production, particularly for textiles.”
Beside these efforts, a dollar boom is expected in Pakistan during the next few weeks, as the government’s Central Directorate of National Savings (CDNS) will launch a new dollar-denominated certificate, which will be called Overseas Pakistanis Savings Certificates. The initial plan is to collect around $500 million to $1 billion from overseas Pakistanis by selling these bonds.
Zafar Masud, director-general at the CDNS, said the government has invited lead managers from foreign and Pakistani banks to mobilise $1 billion savings from overseas Pakistanis through the sale of these certificates. “We have already appointed a consortium of several companies like Ernst & Young, Haidermota & Company and Al Tamimi & Co as our financial and legal advisers for the structuring of the proposed certificates. We hope to raise between $500 million and $1 billion in the first year of the launch,” Masud said. “The certificates are Pakistan’s first-of-its-kind, risk-free security to chanellise instruments from overseas Pakistanis, and a third party will manage the operational aspects of the certificates.”
The new saving certificates will be offered both in dollars and the rupee equivalent. The certificates will be of 3- or 5-year tenure, with quarterly or semi-annual payment of profit. Masud said overseas Pakistanis will subscribe in foreign currency, while the transactions will be cleared in dollars.
“The minimum investment that can be made by an overseas Pakistani will be $1,000 and will be paid in the customer’s bank account in his country of residence or of choice. The certificates will be offered both in dollars and rupees.”
The rate of return of profit is being discussed in Islamabad. But no one can say, at this stage, what it will be. The best view, Khaleej Times has gathered, is that it may be in the range of ‘5 per cent or more’.
The details of the rate of profit on the certificates is expected to be disclosed in ‘around mid-May’.