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Anti money laundering, forex firms and home remittances review

The State Bank of Pakistan (SBP) has asked all foreign exchange companies to make sure their business is in compliance with the anti money laundering rules and regulations and in this regards Forex Association of Pakistan (FAP) have come up to the expectations of the Central Bank. FAP planning to organize workshops and training programs in cooperation with the Central Bank, banks and experts of anti money laundering laws for executives and staff of all exchange companies.

The SBP will proceed against those companies unaware of anti money laundering and take steps in fighting terrorism financing exchange companies. Banks are already implementing the AML/CFT regulations though oversights do occur and SBP does take stern action against them.

Exchange companies are now preparing themselves to become fully compliant regarding the applicable parts of those regulations. Stricter compliance of AML/CFT is necessary for Pakistani banks and exchange companies to avoid the negative impact of being grey-listing by Financial Action Task Force (FATF). It is also necessary for ensuring faster growth of sustainable forex inflows in Pakistan.

Forex companies claim they are willing to make all their operations compliant to AML/CFT in a good spirit of cooperation with the regulators but deny their involvement in illegal handling of remittances. The Central Bank has recently warned exchange companies if they are found involved in tolerating or promoting lack of transparency in their operations, the SBP can take extremely stern actions against them.

The Central Bank had cancelled, despite immense pressure, the license of a big and powerful exchange company that had strong political backing.

If these companies do not become fully responsible in their conduct, Pakistanis settled abroad might stop using their services and switch over totally to banks through their internationally accredited money transfer operators (MTOs).

Exchange companies vital role

Exchange companies play an important role in facilitating remittances of overseas Pakistanis. A significant part of total $19 billion plus annual remittances, up to 15-20 percent by some estimates, comes through exchange companies.

In case the companies don’t become fully responsible in their conduct, Pakistanis settled abroad might stop using their services and switch over totally to banks through their internationally accredited money transfer operators (MTOs).

Home remittances growth

Home remittances of Pakistan are growing at 3.4 percent during this fiscal year, quite at par with the World Bank estimate for global average growth in remittances during 2018, and higher than its 2.6 percent forecast for the entire South Asian region.

With $19.251 billion remittances in calendar year 2017, Pakistan stood sixth among the largest remittances recipient countries behind India, China, Mexico, Philippines and Nigeria.

In eight months of fiscal year 2018 i.e. July 2017 to February 2018, Pakistan received around $12.834 billion in home remittances and this figure may cross the $20billion mark at the end of the year in June.

Exports performance improves

Exports during this period totaled $14.854 billion, pushed by an annualized growth rate of 11.66 percent, and by the end of the fiscal year close around $23 billion.

Neither remittances nor exports can go beyond these projected levels. Even their sum total ($43 billion) would grossly fall short in financing imports that are projected close around $58-59 billion.

Inflows of remittances are witnessing a change in pattern. Saudi Arabia is still on top of the list of host countries from where the bulk of remittances originate but Saudi remittances are currently witnessing negative growth.

Imposition of a tax on non-earning family members of expatriates in the Kingdom, economic problems of Saudi economy, fall in export of our Pakistani labour there and the ongoing process of localization of jobs in the Saudi labour market etc.

In first six months of 2017, only 77,600 Pakistani workers went to Saudi Arabia against 262,119 in six months of 2016, according to Bureau of Emigration and Overseas Employment.

Pakistan has relied on Saudi Arabia and the UAE for too long to attract remittances of overseas Pakistanis working there but now not only Saudi remittances are declining but due to changing market dynamics export of labour to the entire GCC region is falling.

Remittances inflow from there (through official channels) would begin to fall or stop growing.

One way of solving this issue could be to increase checks on remittances inflow through informal ways of Hundi and Hawala.

In case all Pakistanis in the GCC region start remitting money back home via banks and stop using informal means, it would not only boost remittances inflow but would also help Pakistan make a stronger case at FATF about its financial transactions mechanism being efficient enough to fight money laundering in all forms.

Overseas Pakistani workers remitted US $14.606 billion in the first nine months (July to March) of fiscal 18, showing a growth of 3.56 percent compared to US $14.105 billion received during the same period in the preceding year.

During March 2018, the inflow of worker’s remittances amounted to US $1772.77 million, which is 22.24 percent higher than February 2018 and 4.62 percent higher than March 2017.

The country-wise details for the month of March 2018 show that inflows from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to US $427.62 million, US $420.24 million, US $236.17 million, US $244.2 million, US $183.79 million and US $58.89 million respectively.


Exports have reach their highest level in 4 years

In comparison Pakistan received inflows of $504.61 million, $362.94 million, $213.42 million, $209.14 million, $197.21 million and $38.85 million in March 2017 from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries respectively.

Remittances received from Malaysia, Norway, Switzerland, Australia, Canada, Japan and other countries during February 2018 amounted to US $201.86 million against US $168.32 million received in March 2017.

Prospects of foreign investment inflows look brighter

Pakistan reliance on remittances keeps growing even though exports have started showing a double-digit increase and prospects of foreign investment inflows look brighter.

During nine months of FY18 (July 2017-March 2018), overseas Pakistanis repatriated $14.606 billion, or remittances around 3.5 per cent more than a year-ago of $14.105 billion. That remittances are gradually catching up with Pakistan’s exports is evident from the fact that the country’s exports of $17.1 billion in nine months of fiscal year 2018 were only $2.5 billion more than the remittances. It seems the reliance on foreign exchange sent back home by overseas Pakistanis keeps growing.

The SBP report has listed several factors that are responsible for the downward trend in remittances from the kingdom. In its 2017 report on remittances, the World Bank revealed (citing a joint survey of International Labour Organisation and the Global Knowledge Partnership on Migration and Development) that “a significant number of Pakistani construction workers in Saudi Arabia reportedly paid over $5,000 to recruitment agents, an amount equivalent to 20 months or more of earnings.” “Efforts to reduce recruitment costs would require curtailing the abuses and exploitation by illegal recruitment agencies, cooperation with bonafide overseas employers, and stronger bilateral coordination between labour sending and destination countries,” the report recommended.

Tracing historical data, it is pointed out that while remittances from GCC are declining (except for Dubai) those from non-GCC countries are rising at a healthy rate.

Numerous factors such as higher workers’ migration to non-GCC destinations, dollar weakening against other major currencies and reverse capital flight (especially from Dubai due to stricter global financial regulations) are behind these trends.

A lot of repatriation is coming after layoffs (of immigrant Pakistani workers) and a weaker rupee is an attraction for returned expatriates. During the past three years, Malaysia has emerged as a major source of remittances, partly due to increased manpower export to that country and partly because of greater checks on illegal handling of remittances from there as also from elsewhere.

Remittances from Malaysia now constitute the sixth major source of inflows after the Saudi Arabia, UAE, UK, USA and four GCC countries combined (Bahrain, Kuwait, Oman and Qatar).

Surprising India

The World Bank is surprised by how much money Indians abroad send home. India’s overseas population is back to sending home huge sums of money which is even more than what the World Bank expected. In 2017, India received $69 billion in remittances, higher than any other country. This is also higher than the earlier World Bank estimate of $65 billion and marks a nearly 10 percent rise over the previous year, says a report released by the financial institution on April 23.

In 2016, remittances declined nearly 9 percent. The 2017 figure is, however, still below the record of $70 billion received in 2014. This stronger-than-expected growth was driven by faster economic expansion in Europe, Russia, and the US, the report said.

The strengthening price of crude oil helped, too, as it favoured the Gulf Cooperation Council countries like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, which have a considerable presence of Indian nationals.

India has the highest number of residents living abroad, which helps keep the country at the top of the pecking order. Overall, low and middle-income countries like India received record overseas funds of $466 billion. The inflows to high-income countries improved from $573 billion a year earlier to $613 billion in 2017.

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