Islamabad:
State Bank of Pakistan (SBP), which worked Deputy Governor Dr. Inayat Hussain, warned on Wednesday that the government’s decision to limit subsidies to promote foreign transfers that hit a record $ 38 billion can reduce power through banking channels.
The statement came in the midst of a disagreement between the federal government and the central bank about shoulders subsidies in the new financial year 2025-26 under the Pakistan Remittance Initiative (PRI). The Ministry of Finance has not awarded any amount to the scheme, while the central bank has also shown its inability to provide funds.
The steps that the government has taken will push transfers back to the informal sector, Inayat Hussain said while talking during a meeting of the Senate Standing Committee for Funding. Under the leadership of Senator Saleem Mandviwalla, the committee had called SBP to explain the causes of the faster increase in subsidies compared to transfers. In the last few years, the subsidies increased five times compared to an increase of only twice in transfers, Mandviwalla said.
The central bank reported on Wednesday that workers’ transfers rose 26.6% to $ 38.3 billion in the recently completed financial year. Pakistan became the fifth largest recipient of foreign transfers in the world.
The Pakistan Peoples People Party’s government launched PRI in 2009, when the amount surrendered by overseas Pakistanis was only $ 7.8 billion. Transfers are now the largest source of foreign earnings, which is even $ 6 billion higher than exports.
Last month, however, the government significantly reduced the transfer incentives and awarded nothing in the budget for this financial year compared to the RS85 billion for the last financial year.
Against the RS85 billion allocation, the central bank invoiced RS200 billion to the Ministry of Finance. Of the total costs, approx. 85%or RS170 billion under the telegraphic transfer (TT) chart.
Further Finance Secretary Amjad Mehmood told the standing committee that the federal cabinet had approved a revision of the scheme following a summary moved by the Ministry of Finance.
The development came in the midst of increasing pressure on the rupe, which was further depreciated to RS284.5 in the interbank market. In the open market, the rate around RS288 per. Dollar while he was in the gray market, the speed crossed RS290, according to market players. The central bank issued a circular last week on revisions in the transfer scheme showing a significant reduction in benefits for banks and exchange companies.
Inayat Hussain told the committee that the government raised the minimal eligible transaction size to $ 200 and introduced a flat discount of 20 Saudi Riyal (SAR) per year. Eligible transaction, which was effective from July 1, 2025. The old rate was from Sar20 to Sar35, which the government has cut by 43%.
The TT charging scheme offers a zero-cost and free transfer model to the sender and the recipient of eligible transfer transactions. The old model offered the SAR20 refund incentive for each transaction to a value of $ 100 and above, an additional incentive. Transaction of up to 10% on growth in the previous year and a further incentive to transaction of SAR7 for growth exceeding 10% over the previous year.
The federal government also decided that a mechanism should be established to gradually phase out the transfer incentive schemes. In this regard, SBP would suggest and present an evidence-based plan by Factoring in the cost advantage analysis of the existing schemes, Raast integration with Buna and Sama Gateways and strengthening controls against transfers of transfers through formal channels. The central bank’s deputy governor expressed concern about these changes and any future plan to discontinue the scheme. “The scheme is very critical for bringing transfers from the informal sector to the formal sector,” he emphasized.
The government has also abolished the Exchange Companies Incentive Scheme (ECIS), during which these companies rose to RS4 per year. Dollar grants from government.
People attributed to the increase in transfers to the economic action -gasket (FATF) -related measures from foreign governments, but the fact is that transfers were so small that these do not fall into the FATF use area, Hussain said.
Deputy Governor said it was wrong to say that only banks take advantage of the scheme, as foreign transfers were also the recipients.
Despite reducing the benefits of July 1, the Ministry of Finance has not allocated any money for the transfer scheme.
