In the first four months of the current fiscal year, home remittances shot up 26.5 per cent to $9.43 billion from $7.45bn in the same period of last year, according to the State Bank of Pakistan (SBP).

This huge growth in remittances is largely due to a smart rewriting of rules governing foreign currency value accounts or FCVAs. The SBP had rewritten those rules in the first week of August. Later on, the new set of rules created room for the launch of Roshan Digital Accounts or RDAs for overseas Pakistanis.

On Aug 5, the central bank advised banks to start opening exclusive FCVAs for (a) a non-resident Pakistani individual and (b) a resident Pakistani individual who has declared overseas assets. On the same day, the SBP also asked banks to begin the reclassification of the rupee value accounts of non-resident Pakistanis into the following three categories: (a) non-resident rupee account — repatriable (b) non-resident rupee account — non-Repatriable and (c) rupee value accounts — for non-resident Pakistanis only.

The basic purpose for this exercise was to ensure stricter compliance of the anti-money laundering counter–financial terrorism regime and to make a novel experiment on how best expatriate Pakistanis can be motivated to send more remittances by offering them different options.

The purpose-wise segregation of bank accounts being fed by home remittances is attracting higher remittances

The purpose-wise segregation of bank accounts being fed by home remittances has not only helped the central bank watch for the legality of the sources of finances, it is also attracting higher volumes of remittances.

The term Roshan Digital Accounts applies to all of the above-mentioned categories of accounts for non-resident Pakistanis that they can open from abroad and use for making investment in the rupee- or foreign currency–denominated debt securities, stocks and property.

The facility to open joint accounts (after meeting certain criteria) with a non-resident or resident Pakistani is key to understanding why rupee and foreign currency value accounts of non-resident Pakistanis are attracting larger inflows of remittances. If a non-resident Pakistani opens a joint foreign currency value account with a Pakistani individual having declared his foreign assets, both of them can feed the account. But the catch here is the resident Pakistani who is feeding this joint account through the earnings of his declared foreign assets will actually be supplementing the overall inflow of home remittances. This is already happening, bankers say.

Banks have so far opened thousands of rupee and foreign currency value accounts for overseas Pakistanis and operators of some of them are also using these accounts for investing in the rupee- and dollar-denominated government debt securities as well as in stocks. The signing of an agreement between the Pakistan Stock Exchange (PSX) and Bank Alfalah last week for setting up a debt securities’ trading platform is expected to help overseas Pakistanis use Roshan Digital Accounts more frequently and aggressively for investing in the treasury bills and bonds — and recently launched Naya Pakistan Certificates that offer very handsome returns on investment made in dollars. Under this agreement, Bank Alfalah is supposed to play the role of the market maker for debt securities’ trading.

The rates of return offered on dollar denominated Naya Pakistan Certificates are far higher than the returns non-resident Pakistanis can make on government-guaranteed debt certificates in their host countries. These rates of return — ranging between 5.5pc and 7pc depending upon the maturity period of three months to five years — have begun attracting investment in these certificates.

And since the investments in them are being made out of Roshan Digital Accounts meant for overseas Pakistanis, these accounts are being fed with thicker inflows of investment. The rupee-denominated Naya Pakistan Certificates are also offering adequate rates of return — ranging between 9.5pc and 11pc depending upon the maturity periods of three months and five years — and are accordingly receiving enough investment via rupee value accounts of non-resident Pakistanis. In addition to this, the stock market has started experiencing moderate inflows of investment in equities via Roshan Digital Accounts.

On Nov 17, the SBP effectively expanded the scope of all the facilities of rupee value accounts and foreign currency value accounts of non-resident Pakistanis. It amended the rules governing these accounts to accommodate even those Pakistanis that hold Pakistani Origin Cards. The holders of these cards are those who currently do not hold Pakistan’s nationality but have ever remained a Pakistani citizen in their lifetime. Hopefully, this extension in the scope of Roshan Digital Accounts will give further boost to foreign exchange inflows into Pakistan for investment in government debt securities, stocks or property.

Meanwhile, the SBP has also advised banks to report to it the details of home remittances exceeding $10,000 or equivalent of it if those chunks of remittances are not meant for family maintenance or financing of exports. This should help the SBP see clearly how much of remittances are coming into the country for investment and whether they meet the criteria set for feeding Roshan Digital Accounts. The central bank has advised banks not to wait for the customer to fill in special forms for reporting such transactions.

Instead, they have been advised to obtain all required information digitally and use them for reporting on the special format called form R.

The more careful gathering of detailed information on inflows of foreign exchange via Roshan Digital Accounts and its methodical classification is necessary also for removing reporting errors in and avoiding double counting of foreign exchange inflows into remittances and foreign portfolio investment in debt securities and equities.

Published in Dawn, The Business and Finance Weekly, November 23rd, 2020