KARACHI: The State Bank of Pakistan (SBP) and the Arab Monetary Fund (AMF) on Friday signed a memorandum of understanding (MoU) to facilitate remittances from Arab countries with official channels.
The government and the SBP have been trying to stop remittances through illegal channels, which not only destabilises the exchange rate but also reduces inflows. Bankers and currency experts believe that the MoU with the AMF would help Pakistan bring most of the inflows through the banking channels.
Arab countries contribute about 55 per cent of the total remittances. In FY23, Pakistan received $27.3 billion in remittances compared to $31.2bn in FY22, showing a shortfall of $4.2bn.
This shortfall was a cause for concern as the country faced a default-like situation at the beginning of the current fiscal year FY24. It is believed that this $4.2bn was either sold in Dubai at much higher rates or sent home through illegal channels.
In the first week of September, the government initiated a crackdown against illegal currency businesses and dollar smuggling, which produced positive results, and the rupee started appreciating.
However, the latest move to sign an MoU with the AMF is expected to be helpful for the country in receiving maximum remittances through official channels.
Linking Raast with Buna will facilitate Pakistanis to remit money in real time
Director General and Chairman of the Board of the AMF Dr Abdulrahman Bin Abdullah Al Hamidy and SBP Governor Jameel Ahmad signed the MoU in Abu Dhabi on Friday.
“The MoU is signed to establish a framework of cooperation between Buna, the cross-border payment system operated by Arab Regional Payments Clearing and Settlement Organisation “ARPCSO”, owned by AMF, and Raast, Pakistan’s Instant Payment System,” said a press release issued by the SBP.
Buna is the cross-border payment system operated by the “ARPCSO,” which is owned by the AMF. Buna aims to enable financial institutions and central banks in the Arab region and beyond to send and receive payments in local currencies as well as key international currencies in a safe, cost-effective, risk-controlled, and transparent environment.
The SBP said the integration of Raast with Buna aims to facilitate cross-border remittances between the Arab region and Pakistan through formal channels. This initiative will benefit individuals as well as businesses not only through instant, safe and cost-effective cross-border payments, but also by strengthening economic, financial, and investment ties between the Arab countries and Pakistan.
“This strategic collaboration with Raast underscores Buna’s commitment to continue connecting different regions and reinforcing economic, financial, and investment ties between the Arab region and its main global partners,” said Mr Hamidy.
“This resonates with the shared vision of innovating cross-border payment solutions to offer safe and efficient cross-border instant payment access for individuals and corporates,” he said.
“We also aim to increase cross-border remittances by reducing costs and processing times, this initiative confirms the global character of Buna, which adheres to the highest compliance standards to connect the Arab region with its main global partners in line with the vision of its founders.”
Mr Jameel Ahmad said this MoU is a significant strategic achievement that opens the door to a closer connection between Pakistan and the Arab region. He said the integration of the two payment systems will increase remittances to Pakistan through formal channels, with enhanced speed, safety, and savings in these cross-border transactions.
With over five million Pakistanis residing in the Arab region and around 55pc of Pakistan’s total remittances received from Arab countries, SBP is committed to completing the necessary work and operationalising the connectivity between Raast and Buna in the shortest possible time, he said.
Published in Dawn, November 4th, 2023