KARACHI: The Economic Coordination Committee of the cabinet approved on Friday a proposal that incentivises exchange companies to surrender dollars in the interbank market.

At a meeting chaired by Finance and Revenue Minister Shaukat Tarin, the ECC approved a summary aimed at providing exchange companies with cash incentives of Re1 for surrendering each dollar mobilised from inward remittances.

To take advantage of the scheme, exchange companies are required to surrender 100 per cent of their inward remittances in the interbank market. The ECC approved the proposal and directed the authorities concerned to review the model to achieve further improvement.

Speaking to Dawn, Exchange Companies Association of Pakistan General Secretary Zafar Paracha praised the move, saying it’ll encourage exchange companies to make more effort in mobilising inward remittances.

Under the plan, for each dollar surrendered the firm concerned will be paid Re1

“Banks are already getting big incentives. They receive about Rs6 for every $100. I welcome the government’s decision to introduce incentives for us as well,” he said.

Exchange companies receive dollars from two avenues: inward remittances and export of currencies other than the dollar. The government is now offering a Re1 rebate on every dollar mobilised through inward remittances if a company surrenders its entire stock in the interbank market.

Exchange companies also receive funds by exporting currencies other than the dollar and receiving an equivalent amount in greenbacks in return.

This stream of funds is not part of the recently announced incentives scheme.

“The government should incentivise export proceeds as well,” said Mr Paracha, noting that the excluded stream of funds constitutes a bigger chunk of the overall business of exchange companies. Against inward remittances of $1.5-2 billion a year, proceeds of the export of currencies amount to $3.5-4bn annually, he said.

Under the prevailing regulations, exchange companies must surrender 10pc of their export proceeds and 15pc of inward remittances in the interbank market. They’re free to use the rest of the funds to either sell in the open market or make outward remittances on behalf of their customers.

“The SBP has taken a good initiative, which should be extended to cover the proceeds of currency exports,” he said.

Published in Dawn, January 1st, 2022