Experts warn subsidy cuts could slow remittances

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KARACHI: The government’s decision to reduce subsidies on remittances can reduce government arrival. As a counter, experts have suggested the privileges, improved economic documents and digitalization, and more cheap payment methods for maintaining remittances through banking channels.

It was launched by the government in 2009, the Pakistan remittances were designed to the Initiative (PRI) to encourage banks to attract remittances through formal means, thus reducing the volume of Hola transaction and strengthening foreign exchange reserves. However, recently, the program has faced severe debate and criticism by parliamentarians, which argues that it primarily benefits banks. He noted that the subsidies under this scheme have increased faster than remittances.

The government appears to be sharing these concerns, as it has reduced remittances and has not allocated any budget for PRI in the financial year 2025-26, while compared to Rs 85 billion allocated for the previous financial year. Although remittances reached a height of $ 38 billion in FY 25, these reports show that the total payment has exceeded Rs 200 billion under the PRI Scheme and Telegraph Transfer (TT) charges scheme.

The Pakistan Banks Association (PBA) has rejected the idea that banks make profit from government privileges regarding the arrival of remittances, which highlights that they have important costs to maintain formal channels for transfer of money overseas.

Two weeks ago, during a meeting of the Senate Standing Committee for Finance, Dr. Anit Hussain, the acting deputy governor of the State Bank of Pakistan, had warned that the reduction of subsidies could reduce the flow of remittances through banking channels.

Nasir Hussain, the head of International Home Remittances at JS Bank Limited, said that PRI and its incentive schemes have played a major role in encouraging Pakistanis to send money through government channels abroad.

Hussein said, “We also agree that with effective partnerships with remittances abroad, the privileges have supported the permanent growth in the arrival of government channels.” He believes that the privileges provided by SBP and PRI have played a positive role, but there are other important factors. Among them are the confidence and commitment that Pakistanis abroad have expressed their confidence and commitment to help their families.

According to Hussein, economic stability is very important. When people look at stable exchange rates and clear policies, they are more inclined to use government channels for their transactions. Also, the economic health of the host countries, especially those where most of Pakistan’s overseas workers work directly, have a direct impact that they can send home.

Hussein said, “We will encourage policy makers to consider targeted privileges directly to delivery, tax benefits, better digital services and accounts easily. This will help everyone maintain a more sustainable arrival.”

Every month, millions of overseas Pakistanis send money home to help their families and especially to invest in property and savings. These remittances play an important role in supporting the balance of Pakistan payments. The country recorded an additional current account for the first time in 14 years in FY 25, which reached $ 2.1 billion, or 0.5 % of GDP. This is a significant improvement compared to the deficit of 1 2.1 billion a year ago. In FY 25, Pakistan’s central bank forex reserves increased more than $ 14 billion in fiscal year 25, as well as unfortunate increase as well as arrival from multilateral and commercial sources.

Eliminating subsidies through banking and financial analysts and financial analysts and financial analysts and chairperson of Fintic Innovation, bilateral passages, and real -time settlement framework can cause some immediate land.

ACD Securities Limited Director Research, Aus Ashraf, said the reduction in subsidies affects the increase in remittances through banking channels. This may change the amount of increasing amount of the open market as the exchange companies deprive the incentive to hand over foreign currency.

However, Ashraf believes that a number of steps taken by the SBP are expected to support the flow of formal remittances. In these initiatives i) exchanging companies to eliminate internal remittances from banks’ sub -agents of banks; ii) the closure of B category exchange companies; And iii) crackdown on illegal forex trading. In addition, regulatory operations to comply with the FATF (Financial Action Task Force) by the United Arab Emirates and to exit the gray list can help maintain remittances through government channels.

In addition, along with the increase in economic documents and digitalization, the Rosan Digital Account (RDA) holders, with cheap payment solutions such as RAAST and privileges, will potentially encourage individuals to go through formal paths.

Ashraf said, “The stability of remittances through government channels depends on governance. If the government maintains strict monitoring of illegal exchange operations and emphasizes maximum documents, the arrival of remittances should be flexible.”

Can changing the effect of discount structures flow?

Earlier this month, the SBP reviewed the telegraphic transfer (TT) compensation payment to increase its scope to include exchange companies. Under the new changes, the minimum transaction size has been increased to $ 200 eligible for compensation. Before that, it was $ 100. In addition, the government has introduced 20 Saudi riyals (SAR) flat waiver for every qualified transaction, while the old waiver rate is from SAR 20 to 35.

Hussein believes that changes in the structure of the structure naturally affect trade arrangements between banks and their overseas partners. Time and transfer method is important.

Hussein said, “Any change in privileges can create adjustment challenges in the short term.” He added, “We believe that a phased outlook in the future and further explanation helps all stakeholders adjust and maintain the flow.”

Amin believes that the waiver was an important financial incentive that encouraged banks and exchange companies to invest in infrastructure for remittances, access and service virtues. If the new model offends this stimulus without providing a viable alternative – such as transaction fee sharing, digital wallet waiver, or a fantasy partnership – can really temporarily decrease.

Circular loan concerns

The National Assembly Standing Committee for Finance and Revenue has raised concerns about the growing circular loan issue regarding the rewards paid to banks and exchange companies.

Hussein said, “Regarding the concerns about ‘circular loan’ in the rewards procedures for remittances, we understand the importance of financial discipline,” however, the privileges should be balanced to ensure that the documentary influys are directly dedicated to the benefits of the country. “

Is the pressure on the rupee linked to a reduction in remittance subsidy?

Ashraf said that financial institutions, including the money exchange, have expanded their spread to eliminate subsidies, which has kept the Pakistani rupee under pressure in recent days.

According to Hussein, the exchange rate depends on a number of factors. But if sending money through government channels becomes less attractive, people can turn to informal options, which can expand the difference between open markets and interbank rates. To avoid this, formal channels must be kept competitive.

Amin believes, while the reduction in subsidies can reduce the arrival of remittances through government channels, but the rupee pressure is from broader structural factors: loan service, current account dynamics, and external financing flow.

Can remittances remain strong in fiscal year 26?

Experts expect remittances for this fiscal year, as Pakistanis are continuing to help their families. However, the growth may begin to normalize, as other countries implement effective strategies – such as direct sender privileges, improved digital services, and tax benefits – relying on any backward subsidy without maintaining the flow of healthy remittances. Analysts believe that Pakistan is well positioned to maintain remittances between 35 billion to $ 37 billion. Some estimates suggest that remittances in fiscal year 26 may increase by 7.0 %.