Pakistan Remittance Initiative is now a headless chicken

Exchange rate may not be the most significant factor for the Pakistani worker abroad. They have to send money to their families to meet the monthly expenditures. They do hold back their savings if they find that the rupee is weakening in the near term. For them, the past few years have been a bit of a mixed bag. While job security has been on a thin line, those that did manage to survive the bust, have been able to send home more money, albeit in rupee terms.
Remittances in May were recorded at $757 million, up more than 5 percent over the same month last year. A compounding effect over monthly increases has led to record levels of documented remittances.
The fiscal year that ended saw the highest ever remittances, inflows of more than $8 billion, nearly 20 percent higher than the previous year. Interestingly, the record rise came at a time when the world economy is still shaky and most countries have witnessed declines in workers remittances.
The increase didn come out of the blue. Last year, Pakistan Remittance Initiative (PR!) was launched, as a joint venture between SBP, Ministry of Finance and the Ministry of Overseas Pakistanis. It was aimed at encouraging Pakistani workers to send money to their families via the banking system.
According to estimates, some $14-16 billion in remittances is sent yearly, however many workers preferred hundi and hawala systems due to speed and ease of transaction despite a poorer rate of exchange. On average, only 50 percent of the workers inflows travel through banking channels.
A basic aim of PRI was to speed up the delivery process. Prior to PR!, it could take up to two weeks for the money to arrive through legal channels whereas hundi could facilitate the transaction in 4 to 6 days. "The transaction has been reduced to 1-2 days, using internet banking" said Khalid bin Shaheen at the National Bank of Pakistan.
Attracting another $6 billion in reserves improves the countrys debt capacity and debt servicing capability. Consequently, the credit rating of the country will improve making it an attractive destination for foreign direct investment as well as allowing the government to raise money from the international bond market at a relatively cheaper cost.
Now that the time incentive has been taken care of by PRI, innovative new incentives will have to be thought up. A marginal pool of the remittances - perhaps 0.5-1 percent may be allocated towards cash bonuses and other prizes to attract workers.
Unfortunately, there was no ownership of the home remittance process. While SBP collected monthly figures of inflows, Ministry of Finance oversaw the rules and regulations governing the process.
It goes to the credit of this government, wherein a consumer banker turned minister Shaukat Tarin created a joint venture organisation between MoF, SBP and Ministry of Overseas Pakistanis. This organisation is known as Pakistan Remittance Initiative (PRI).
Now that they are out of picture, the system will be truly tested. Will the current administration be able to incentivize the worker and reduce the frictions in the system?
At a time when everyone expected the home remittances to fall as a result of major lay-offs in the aftermath of worldwide financial crisis - Pakistan defied the trend as home remittances increased in 2009-10. Against a target of $9 billion, around $8.7 billion were received under PRI. PRI is a holding company with a self sustaining budget; housed in SBP. The Finance Minister, Governor SBP and Minister of Overseas Pakistanis Farooq Sattar meet every month to review the PRI process and approve incentives to attract more home remittances.
25 Saudi riyals for every $1000 remitted was offered to banks in Pakistan to share with exchange companies abroad. Funding for this was created by taking less than one percent of the home remittances amount as the budget for their purpose. However, these incentives were not offered to local exchange companies as they were not willing to shut down their back office operations. As a consequence, business has shifted to the banks with SBP able to capture these inflows.
The silver lining may not last for long though. Now that the time incentive has been taken care of by PRI, innovative new incentives will have to be thought up. Besides tickets on PIA, telecom companies are to be targeted to give additional rewards to the remittances through PRI.
Next years target is $9.5 billion given to PRI. But the organisation has become a headless chicken with Tarin and Salim Raza not there. Will Hafeez Sheikh and Yasin Anwar pick-up the pieces where their predecessors left off is a million dollar question.