KARACHI: The State Bank of Pakistan (SBP) on Thursday urged currency dealers to discuss measures to further improve remittances.

The dealers, however, said the grey market has already taken more than 50 per cent of their business.

“We have been invited by the SBP for improvement and incentives being offered by the government for remittances but the exchange companies — especially larger ones with big network — are facing losses,” said Zafar Paracha, former general secretary of Exchange companies Association of Pakistan.

The government has recently announced incentives for currency dealers in the wake of their improved performance towards increasing remittances.

“I believe the SBP will tell us the benefit of the scheme which offers Rs1 per dollar on remittances if a company increases 15pc in its total remittances. The amount would be paid on additional 15 per cent remittances,” said Paracha.

He said this amount of Rs1 per dollar should be given to remitter instead of giving it to currency dealers that could increase the inflow through legal channel.

“The official remittances can’t improve as more than 50pc inflow has gone to grey market as they offer better price without identifying the remitter and receiver,” he added.

He added that illegal market or grey market has captured major chunk of their business while cash market has also shifted to the illegal money changers.

“People are afraid of being identified which forced them to encash their holdings through unlicensed money changers,” he said.

Currency dealers said the margin of profits have dropped due to narrow difference between open market exchange rate compared to bank rates.

“Big companies who have large network are facing losses due to thin difference of rates while the Hundi and Hawala market got more than 50pc share of our market as they offer Rs2-3 per dollar more than us,” said Forex Association of Pakistan President Malik Bostan.

Highest price of dollar in the inter-bank on Monday was Rs155.30 and Rs155.60 in the open market; a difference of just 30 paisa per dollar.

He said the exchange companies are facing losses since the beginning of FY20. Only small companies and unlicensed money changers are making profits.

Paracha said there is little room for licensed money changers to continue their operations that will ultimately help the grey market to flourish.

“The banks are unable to handle day-to-day currency market operations and that was the reason for the creation of exchange companies. It is unbelievable that the government is fighting to curb illegal transactions to come out from the grey list but the decisions are helping the illegal currency business in the country,” he said.

Currency dealers said trade of foreign currencies has dropped drastically during this fiscal year while inflows of foreign currencies also declined.

The exchange rate has remained stable for the last couple of months which reduced charm for investors while returns on rupee deposits are much more higher compared to keeping dollar for better price.

Published in Dawn, December 3rd, 2019