Normally, the gap hovers from thirty to seventy paisas - on an average of fifty paisas. Money brokers know that from 10th of Ramazan the inflow of forex from expatriate Pakistanis jumps up. And, just before Eid, in fact, the open market rate is below the official parity with the US dollar.
In order to bridge this gap, between official and open market rate, the State Bank of Pakistan needs to raise the bar on exchange companies and money changers to surrender 50 percent of the forex received by them through the system. At present, they surrender only 10 percent of the amount received through the system which is reported to SBP. Second, the exchange companies have been demanding permission to officially be allowed to remit for business purposes through electronic transfers (TTs). They could be allowed to officially remit only small amount, ie, up to Rs 25,000 for business needs.
The other big user of home remittances are gold traders. Jewellers are officially allowed to import gold against jewellery exported. It is said that cheap artificial jewellery is exported and gold imported against payment of the UAE dirhams or Saudi riyals meant for transmission to Pakistan. Greater vigilance by Pakistan Customs could plug this leakage.
Money changers are not the only ones, wanting to avail the quick buck opportunity. Some banks have offered to provide 500 million to one billion dollars as a bridge, before the disbursement of funds from the International Monetary Fund. Dollar deposits under the FE 25 Scheme with them are believed to be around 5.7 billion dollars. Around 1.8 billion dollars of the aggregate is tied to loans and mandatory reserves - leaving 3.5 billion dollars which can be sold to SBP. Some banks have offered to give a billion dollars as a bridge loan on 6.5 percent interest and fee against securitization of future home remittances. This easy money ripe for picking as an arrangers fee.
Whether the help comes from money changers or the banks it would be cannibalising from the same pie. The country does need non-debt creating inflow of forex but not at such a high cost. Is there the need to get into a panic mode? Some say yes, while others say no. One thing is, however, certain. Unless the widening gap between official and open market rates is arrested and normalised it could play havoc with the home remittances which could be very detrimental for the struggling economy.