October 31, 2001	Wednesday	Shaba’an 13, 1422

KARACHI, Oct 30: Home remittances or the foreign exchange sent back home by overseas Pakistanis rose to $366 million in July- September this year from $340 million a year-ago.

State Bank officials say the remittances rose chiefly due to a dramatic fall in the difference between the inter-bank and open market exchange rates.

The difference started shrinking after the terrorist attacks on New York and Washington on September 11, which led to temporary inflow of dollars both in the inter-bank and kerb market. By the end of the month the spread between official and kerb exchange rates narrowed to Rs1.65 per US dollar from Rs2.15 on September 10. Since then the spread has shrunk further, and is now at a few paisa per dollar. On one particular day of this month the spread was even levelled out.

But even last month the narrowing of the gap between the inter -bank and kerb rates was enough to lure overseas Pakistanis in sending foreign exchange through banks rather than through informal channels. Apparently they did this and home remittances went up.

Bankers say what else contributed to higher remittances was a big inflow of $70 million from Kuwait in July-September against only $12.2 million in the corresponding period last year. They say a big chunk of this amount consisted of the compensation that Kuwait pays periodically to Pakistani victims of the Kuwait- Iraq war of early 1990s.

Remittances from other countries including Bahrain, Germany, Norway and Qatar also rose modestly mainly due to waning spread between the inter-bank and kerb exchange rates. But as these are not the main source of home remittances the volumes are still not very impressive. Overseas Pakistanis in the US, UK, UAE and Sultanat-e-Oman sent lesser amounts of foreign exchange in July- September this year than they had remitted in a year-ago period.

Home remittances are the second largest source of foreign exchange after exports.

FUTURE OUTLOOK: Senior bankers say home remittances would keep rising until the spread between the inter-bank and kerb market widens too much to discourage them from sending foreign exchange through banking channels.

“If there is no spread at all or the dollar sells at a higher price in banks than in the kerb market the remittances will keep rising,” said treasurer of a leading local bank.

“Remittances might continue to rise even when the price of the dollar in the kerb market is higher by Re1 per dollar than in the inter-bank market.”

“But if the kerb market premium again shoots up to Rs2-3 per dollar than growth in remittances might be hurt,” he observed.

More than 3.5 million overseas Pakistanis send back home not less than $7-8 billion per year of which only $1 billion comes through the banking channels and the rest through “hundiwalas.”

Hundiwalas or those involved in remittances through informal channels not only offer better exchange rates but still better services. It is a common knowledge that foreign exchange sent through hundiwalas reach the destination within 24 hours whereas most banks take several days in handling home remittances. Further, it is much easier for overseas Pakistanis, particularly semi-literate and illiterate ones, to send dollars or riyals through hundiwalas because the procedure through banks is complicated.

The Habib Bank president, Zakir Mahmood, said at a press conference on Tuesday that his bank was making the procedure of home remittances simpler. Officials of other banks handling home remittances say they are also doing the same.

Central bank officials say this is the most opportune time for the banks to improve efficiency to attract more home remittances through banks. “The spread between the inter-bank and kerb market exchange rates is gone—and even if it is there it would not be that big now,” said a senior official of the SBP.

“The only thing that matters now is whether bank can simplify the procedure for remitters and whether they can deliver their money to the beneficiaries within a day or two.”