16 May 2004	Sunday	25 Rabi-ul-Awwal 1425

KARACHI, May 15: Workers' remittances or money sent back home by overseas Pakistanis have reached $3.21 billion in ten months to April 2004. This means that the total remittances during this fiscal year may touch $3.8 billion mark.

But a sharp fall of 30 per cent in the remittances from the UAE is still a cause of concern for the State Bank. Remittances from the UAE fell to $500 million in July/April 2003/04 from around $718 million in a year-ago period showing a decline of $218 million or 30 per cent.

Central bankers view this fall with concern. They say that SBP may soon make a major move to ensure that the UAE-based Pakistanis do not use informal channels to send foreign exchange back home - which reduces official remittances from that country.

They say that the SBP may refrain foreign exchange companies from bringing in cash dollars from Dubai against export of non-dollar currencies.

This move would eventually help stabilize the exchange rates in the open market and contain hundi operations or transfer of foreign exchange from the UAE through informal channels.

"We may ask the exchange companies anytime to stop import of cash dollars from Dubai and use their nostro accounts for this purpose," said a senior central banker who declined to be named. State Bank Governor Dr Ishrat Husain had also warned exchange companies at a meeting earlier this month that the SBP might stop them from brining in cash dollars from Dubai against export of non-dollar currencies.

"We are quite serious about that. We may have to do it," said the central banker. "Cash import of dollars indirectly destabilizes exchange rates in the open market and encourages the UAE-based Pakistanis to use hundi for sending foreign exchange back home through hundi," he said.

When exchange companies export non-dollar currencies to Dubai they bring back home their dollar equivalent either through their nostro accounts or in cash. While bringing in cash dollars they do misreport the amount causing an artificial shortage of dollars in the open market. Thus the dollar becomes dearer in the open market compared to the inter-bank market providing an incentive to overseas Pakistanis to send foreign exchange back home through hundi. Pakistanis based in the UAE particularly fall prey to this situation primarily because hundi operators of Pakistani origin have a network in Dubai.

The end result is that remittances from Pakistanis based in the UAE come down. And a fall in official forex inflows from Pakistanis based in the UAE lowers total workers remittances in which their share is more than 20 per cent.

This explains why workers' remittances from the UAE has been on the fall.

Data released by the SBP shows that remittances from Kuwait also fell to $145m in the first ten months of this fiscal year (i.e. July/April 2003/04) from $198m. But central bankers point out that whereas the inflows of July/April 2003/04 does not include the monetary compensation Pakistanis were getting from Kuwait in relation to Kuwait-Iraq war of 1991.