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Express Tribune
2 days ago
- Business
- Express Tribune
PBA refutes claims subsidies serve no purpose
The Pakistan Banks Association (PBA) has strongly rejected "misleading assertions" in recent press coverage, suggesting that government subsidies to banks under remittance incentive schemes serve no economic purpose. "Such narratives dangerously undermine public confidence at a time when Pakistan's financial stability depends on robust formal remittance flows," the association said in a statement. It recalled that when the Pakistan Remittance Initiative (PRI) was conceptualised in 2008, formal remittances stood at only $6.5 billion, while an estimated $20 billion flowed through undocumented Hawala/Hundi channels, exacerbating balance of payments pressures. The PRI, launched in 2009, was a homegrown solution to shift flows to formal banking channels, offering an initial incentive of SAR 20 per transaction, approximately 2.25% of the average $500 transaction, which was far more viable than foreign borrowings carrying interest rates above 3.5% plus long-term repayment obligations and exchange rate risks. In contrast, PRI incentives are one-time PKR payments with no repayment liability, making them a strategic win-win for Pakistan's economy, the PBA said. According to the association, banks do not profit from these incentives. In reality, they bear enormous costs to remain competitive, offering higher rebates and forex premiums to money transfer operators and remitters abroad. "These costs are only partially offset by government incentives, with the remainder absorbed by banks to maintain essential liquidity for import payments and economic stability." Allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion are baseless, it stressed, adding that banks operate under strict SBP regulations, AML/CFT frameworks, and independent audits. "The classification of freelancer and IT exporter earnings as remittances is a policy classification issue needing regulatory clarity, not bank misconduct."
Business Recorder
2 days ago
- Business
- Business Recorder
PBA refutes reports on remittance subsidies to banks
The Pakistan Banks Association (PBA) rejected on Monday what it called 'misleading assertions' in recent press coverage suggesting that government subsidies to banks under remittance incentive schemes serve no economic purpose. 'Such narratives dangerously undermine public confidence at a time when Pakistan's financial stability depends on robust formal remittance flows,' PBA statement read. It further said when the Pakistan Remittance Initiative (PRI) was conceptualised in 2008, formal remittances stood at only $6.5 billion, while an estimated $20 billion flowed through undocumented hawala/hundi channels, exacerbating balance of payments pressures. 'The PRI, launched in 2009, was a homegrown solution to shift flows to formal banking channels, offering an initial incentive of SAR 20 per transaction, approximately 2.25% of the average $500 transaction, which was far more viable than foreign borrowings carrying interest rates above 3.5% plus long-term repayment obligations and exchange rate risks. In contrast, PRI incentives are one-time PKR payments with no repayment liability, making them a strategic win-win for Pakistan's economy.' The PBA was of the view that banks do not profit from the incentives. 'In reality, they bear enormous costs to remain competitive, offering higher rebates and FX premiums to Money Transfer Operators (MTOs) and remitters abroad. These costs are only partially offset by government incentives, with the remainder absorbed by banks to maintain essential liquidity for import payments and economic stability.' For example, it added, banks often pay Rs3-5 per USD premium over interbank rates to attract flows that would otherwise revert to hawala, incurring direct losses in the national interest. 'Contrary to claims, banks invest heavily in compliance systems, international correspondent banking relationships, technology platforms, and customer outreach to process remittances securely and efficiently,' the PBA said. Approximately 90% of rebates before FY25 and over 100% under FY25 schemes were passed directly to international partners, leaving no direct profit for banks, according to the association. 'Furthermore, banks pay their partners upfront while government reimbursements are delayed by months, imposing significant working capital costs. 'Banks submit monthly data of PRI remittances to SBP, duly reviewed and certified by Internal Audits of the Banks. SBP also conducts review of this certified data before making payment of incentive under the scheme.' Allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion 'are baseless', the PBA said. It further said banks operate under strict SBP regulations, AML/CFT frameworks, and independent audits. The classification of freelancer and IT exporter earnings as remittances is a policy classification issue needing regulatory clarity, not bank misconduct, the press release stated. 'It is telling that such narratives are often promoted by vested interests seeking to dismantle the formal banking remittance ecosystem to divert flows back into their networks. These banking-led initiatives have been instrumental in ensuring Pakistan's compliance with global AML/CFT standards, preventing potential blacklisting that would cripple the economy. 'Pakistan's banks continue to offer competitive FX rates despite incurring losses, solely to preserve formal flows. Without these incentives, remittances would revert to undocumented channels, undermining fiscal sustainability and increasing dependence on costly foreign borrowing.' According to the PBA, the suggestion that banks are subsidised 'ignores the economic reality that these incentives ensure secure, documented, and traceable remittance flows critical for Pakistan's economy'. 'Banks remain among the country's largest taxpayers and employers, paying over Rs850 billion in taxes annually, while financing every facet of national economic activity. 'Mischaracterising their role only weakens public trust at a time when economic unity and realism are paramount.' The PBA said while modalities could be improved over time, PRI remained a strategic success story. 'The PBA remains committed to working with policymakers to strengthen Pakistan's economy, maintain global compliance, and safeguard financial stability, but rejects in the strongest terms any narrative driven by vested interests that undermines the banking sector's contributions and national economic security. 'PRI is an essential driver striving for Pakistan's financial independence and diversion from reliance on international debt and forex assistance,' the press release read.
Express Tribune
3 days ago
- Business
- Express Tribune
PBA refutes misleading claims on remittance subsidies
Listen to article The Pakistan Banks Association (PBA) rejected on Monday misleading assertions in recent press coverage suggesting that government subsidies to banks under remittance incentive schemes serve no economic purpose. In a detailed statement, the PBA cautioned that such narratives risk undermining public confidence in formal remittance channels at a time when financial stability relies on documented foreign inflows. "When the Pakistan Remittance Initiative (PRI) was conceptualised in 2008, formal remittances stood at only $6.5 billion, while an estimated $20b flowed through undocumented hawala/hundi channels, exacerbating balance of payments pressures," read the statement. The PRI, launched in 2009, was a homegrown solution to shift flows to formal banking channels, offering an initial incentive of SAR 20 per transaction, approximately 2.25% of the average $500 transaction, which was far more viable than foreign borrowings carrying interest rates above 3.5% plus long-term repayment obligations and exchange rate risks, it added. "In contrast, PRI incentives are one-time PKR payments with no repayment liability, making them a strategic win-win for Pakistan's economy. Banks do not profit from these incentives." In reality, they bear enormous costs to remain competitive, offering higher rebates and FX premiums to Money Transfer Operators (MTOs) and remitters abroad, according to the statement. These costs are only partially offset by government incentives, with the remainder absorbed by banks to maintain essential liquidity for import payments and economic stability. "For example, banks often pay Rs3-5 per USD premium over interbank rates to attract flows that would otherwise revert to hawala, incurring direct losses in the national interest," explained PBA. "Contrary to claims, banks invest heavily in compliance systems, international correspondent banking relationships, technology platforms, and customer outreach to process remittances securely and efficiently," it added. Approximately 90% of rebates before FY25 and over 100% under FY25 schemes are passed directly to international partners, leaving no direct profit for banks, according to PBA. Furthermore, banks pay their partners upfront while government reimbursements are delayed by months, imposing significant working capital costs. Banks submit monthly data of PRI remittances to SBP, duly reviewed and certified by Internal Audits of the Banks. SBP also conducts review of this certified data before making payment of incentive under the scheme. Allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion are baseless, read the statement. Banks operate under strict SBP regulations, AML/CFT frameworks, and independent audits. The classification of freelancer and IT exporter earnings as remittances is a policy classification issue needing regulatory clarity, not bank misconduct. It is telling that such narratives are often promoted by vested interests seeking to dismantle the formal banking remittance ecosystem to divert flows back into their networks, maintained PBA. "These banking-led initiatives have been instrumental in ensuring Pakistan's compliance with global AML/CFT standards, preventing potential blacklisting that would cripple the economy. Pakistan's banks continue to offer competitive FX rates despite incurring losses, solely to preserve formal flows. Without these incentives, remittances would revert to undocumented channels, undermining fiscal sustainability and increasing dependence on costly foreign borrowing. The suggestion that banks are subsidised ignores the economic reality that these incentives ensure secure, documented, and traceable remittance flows critical for Pakistan's economy." Banks remain among the country's largest taxpayers and employers, paying over Rs 850b in taxes annually, while financing every facet of national economic activity. Mischaracterising their role only weakens public trust at a time when economic unity and realism are paramount, according to PBA. While modalities can be improved over time, PRI remains a strategic success story. "The PBA remains committed to working with policymakers to strengthen Pakistan's economy, maintain global compliance, and safeguard financial stability, but rejects in the strongest terms any narrative driven by vested interests that undermines the banking sector's contributions and national economic security," read the statement. PRI is an essential driver striving for Pakistan's financial independence and diversion from reliance on international debt and forex assistance.
Business Recorder
30-05-2025
- Business
- Business Recorder
A ‘bold' budget for next FY
EDITORIAL: Finance Minister Muhammad Aurangzeb while addressing an event organised by Karandaz Pakistan and Pakistan Banks Association claimed that macroeconomic stability has been achieved. However, this stability, as per the October 2024 documents relating to the approval of the ongoing Extended Fund Facility programme are, is disturbing as the country's vulnerabilities continue to persist. The Fund document notes, 'A large part of the economy is uncompetitive, propped up by the extensive use of protection, subsidies, and tax concessions, which have undermined the tax base. Protectionism, including from new entrants in domestic markets has undermined competition, leading to inefficiency and low productivity. A difficult business environment and weak governance have hindered investments, which remain significantly lower than peer countries, further undermining competitiveness. Economic volatility has only increased over time, with a tight correlation between Pakistan's boom-bust economic outcomes and its macroeconomic policies. The repeated attempts to boost economic activity through fiscal and monetary stimulus have not translated into durable growth, as domestic demand increased beyond Pakistan's sustainable capacity, resulting in inflation and depletion of reserves, given a strong political preference for stable exchange rates. Each subsequent bust has further harmed Pakistan's policy making credibility and investment sentiment.' Aurangzeb further stated that the government is preparing to introduce 'bold measures' in the budget with a focus on strategic direction. One must welcome this orientation that was lacking in previous budgets as the focus was on balancing the books through raising the target revenue to an unrealistic level that was rarely if ever met by the end of the year, and adjusting the shortfall through slashing the Public Sector Development Programme (PSDP). In addition, domestic and external borrowing was increasingly relied on to meet our external financing needs (read repayment of interest and principal as and when due on foreign debt) as well as the budget deficit targets agreed with the IMF; and in this context it is relevant to note that in the current fiscal year the budgeted external borrowing has not yet materialised, partly due to global factors but partly due to Pakistan's high-risk rating that continues in spite of claims of having achieved economic stability. Next year's foreign borrowing requirements are projected at 19.3 billion dollars, which no doubt would limit the government's capacity to introduce some 'bold measures' unless of course the government is able to slash current expenditure at best or keep it at 2024-25 levels at worst. The minister proceeded to aver that rather than making the math work the government intends to make the budget more strategic. This too must be appreciated though the recent statement by the Finance Ministry delivered during the meeting of the sub-committee of the National Assembly on Commerce should be a source of concern; notably, the acknowledgement that there was a disagreement with the Fund over some key budgetary figures including subsidy allocation. There is overwhelming evidence that Pakistan has almost no leverage with the Fund at present that would allow the authorities an element of phasing out the harsh up-front conditions without proactively exercising leverage through either pension reforms (with the start of employee contributions) and resisting a pay raise for the 7 percent of the workforce which receives a salary at the taxpayers' expense, a policy that no previous administration has been able to implement, and to strictly adhere to the math behind the budget document by adhering to the expenditure and revenue sources identified in the budget. The minister also claimed that Pakistan has achieved macroeconomic stability and emphasised the need for avoiding past mistakes that accounted for the boom-bust syndrome. There is no doubt that in the past the 'sugar high' he referred to was a factor that led the country to repeat the same mistakes over and over again: pumping liquidity into the market (through mainly government expenditure on industrial incentives and subsidies), which led to sustaining an industrial base (that envisages exporting the surplus rather than producing for export) that requires massive imports which, in turn, led to periodic balance of payment issues requiring IMF programme loans. The challenges facing the country's economy are immense and one can only hope that the finance minister stays the course, with full support from all stakeholders, otherwise the country would be pushed deeper into the mire with the prospect of success even more difficult. Copyright Business Recorder, 2025
Business Recorder
26-05-2025
- Business
- Business Recorder
Aurangzeb says budget to exhibit ‘bold initiatives'
ISLAMABAD: The federal government is preparing to introduce bold measures in the upcoming budget with a focus on strategic direction, Finance Minister Muhammad Aurangzeb said Monday. While addressing an event organised by Karandaaz Pakistan and Pakistan Banks Association (PBA) here, the finance minister said that budget is not just about revenue and expenditure, it has to provide the strategic direction of where the economy is, and where it is heading. He added that rather than making the math work, the government intends to make the budget document more strategic. Govt to introduce 'bold measures' in the upcoming budget, says Aurangzeb The federal budget for FY2025-26 will be presented on June 10, 2025. Meanwhile, the Pakistan Economic Survey 2024-25 will be released on June 9, 2025. Talking about the recent escalation of tensions between Pakistan and India, Aurangzeb said that these are very tense moments. The entire nation has rightly celebrated the way our armed forces and political leadership have stood up against the aggression. Aurangzeb shared that efforts were made to derail Pakistan's engagement with the International Monetary Fund (IMF). He said, there was no stone left unturned in terms of ensuring that the meeting with the IMF does not happen. If the meeting does happen, then these items are not on the agenda, whether it is the second tranche under the Extended Fund Facility (EFF) and the $1.3 billion under the Resilience and Sustainability Facility (RSF). However, we are beyond that, and our case was discussed and decided on merit. He said the unity shown by the nation against recent aggression is the same unity needed on the economic front. On macroeconomic stability, Aurangzeb emphasised the need to avoid repeating past mistakes. He said that we have achieved macroeconomic stability in yesteryears and in the previous decades as well, but we have squandered the opportunity. Because it is easy to get into a sugar rush, i.e. pump liquidity into the market, go for consumption-led growth, which triggers balance of payment and FX issues. He said that to break away from the boom and bust cycle, Pakistan needs to stay the course in terms of structural reforms. Aurangzeb shared that the government remains committed to simplifying the tax return filing process for the salaried class. '70-80 per cent of the salaried class do not necessarily hold equity or income portfolios, why should they fill 140-150 measures? 'We are trying to bring it down to nine items, five on the wealth and four on the income tax side.' He said the government wants to implement the simplified process by the end of September. On the SoE reforms, the finance minister admitted that this is one area where we did not do well last year. He said that the government remains committed to accelerating reforms in this sector. He confirmed the PIA transaction has been relaunched and expressed optimism about its completion. On debt servicing, Aurangzeb said in the ongoing fiscal the government debt servicing cost has decreased by Rs1 trillion. 'Next year, we are going to restructure/reorganize our debt management office along the modern lines,' he said. The finance minister was of the view that the ongoing structural reforms would put Pakistan's economy 'on a path of sustainable growth'. Aurangzeb expressed optimism about Pakistan's long-term economic trajectory. Our economy has crossed the $400 billion level. This shows we are moving in the right direction but to become a $3 trillion economy by 2047, we need to mitigate two existential issues, i.e. population and climate. He said four out of the six points under the 10-year Country Partnership Framework inked with the World Bank deal with climate and population. Speaking about the importance of the initiative, Syed Salim Raza, chairperson Karandaaz, said: 'Karandaaz is proud to support Pakistan's financial sector as it transitions toward purpose-driven finance. This training is part of our broader commitment to building the institutional capacity required to align with global investment standards and deliver measurable development outcomes. By strengthening local capabilities in impact measurement and sustainable finance, we are laying the foundation for a more inclusive and resilient financial system.' Addressing the participants, Director Development BHC Islamabad Jo Moir stated, 'This training underscores BHC's long-term engagement with Pakistan's financial sector. A decade ago, we supported the creation of Karandaaz as a special purpose impact finance vehicle. Today, it serves as a lighthouse for the sector, demonstrating scalable models for inclusive and sustainable finance.' The workshop is being led by Alex MacGillivray, executive director at the JIM Foundation and a globally recognised expert in impact measurement. With a career spanning development finance institutions and advisory work international impact investors, MacGillivray has delivered a highly practical curriculum that blended theory with real-world applications. 'The idea was to move beyond traditional credit models and introduce a more purposeful financing approach, one that drives measurable outcomes alongside financial returns,' said MacGillivray. 'With the right institutional momentum and leadership, Pakistan can play a key role in the global impact investing movement.' The training is covering a comprehensive range of topics, including strategic intent, impact governance, portfolio-level impact design, impact at exit and independent validation. Participants are engaging in interactive case studies, peer learning sessions, and scenario-based exercises aimed at translating concepts into actionable strategies. Articulating the sector's commitment to sustainable finance, Muneer Kamal, CEO and Secretary General PBA, said, 'Pakistan's banking sector must lead from the front as we transition towards a more sustainable and impact-driven financial ecosystem. This partnership with MoF and Karandaaz reflects PBA's commitment to strengthening sectoral readiness and aligning capital with long-term national priorities.' This training reinforces the commitment by MoF, Karandaaz and PBA's ongoing efforts to strengthen institutional capabilities in Pakistan's financial sector and support the country's transition toward sustainable, impact-oriented finance. As global standards for responsible investing continue to evolve, Karandaaz remains committed to equipping local actors with the tools and knowledge needed to access and manage development capital effectively. Copyright Business Recorder, 2025
