The federal government has decided to allocate a supplementary grant of Rs30 billion to restart subsidies for foreign remittances, after the finance ministry initially dropped the subsidies from the budget in June. This move follows growing concerns about a decline in remittance inflows and a lack of consultation with key stakeholders before the subsidy cuts were implemented.
As per a report published in The Express Tribune, the finance ministry agreed to restore the subsidies after the central bank raised concerns and Prime Minister Shehbaz Sharif intervened, ordering the urgent release of funds. In the first phase, about Rs30 billion is expected to be approved soon by the Economic Coordination Committee (ECC) of the Cabinet. Since no funds were allocated in the budget for this purpose, the money will be drawn from the contingency fund, which is reserved for unforeseen expenses. Further allocations will be made as the fiscal year progresses.
Last year, the finance ministry had set aside Rs87 billion for the subsidies, but the central bank billed Rs200 billion to the finance ministry, with the majority of costs arising from the Telegraphic Transfer (TT) Charges Scheme. Due to the growing cost of the scheme, the finance ministry decided to stop allocating funds in the budget, instead shifting the financial responsibility to the central bank, which is responsible for maintaining foreign exchange reserves.
However, the central bank informed the government that under the International Monetary Fund (IMF) program, it could not provide any subsidies. This led to Prime Minister Sharif’s recent intervention, reaffirming the importance of overseas Pakistanis and their vital contribution to the country’s development through remittances.
SBP Governor Jameel Ahmad reported that the discontinuation of the subsidy led to a significant drop in remittance inflows in the first half of July. While the finance ministry acknowledges the slowdown, it attributes the decline to seasonal factors rather than the subsidy cut alone. Data from the SBP shows that remittances reached a record $38.3 billion in the 2024-25 fiscal year, a 27% increase from the previous year. However, the finance ministry still considers the Rs200 billion subsidy burden unsustainable.
The government continues to face challenges in boosting exports, which barely reached $32 billion in the last fiscal year. With remittances playing a crucial role in easing pressure on foreign exchange reserves, any further slowdown could exacerbate pressure on the rupee, which has recently appreciated due to official market interventions.
Moreover, the finance ministry has expressed concerns about financial institutions potentially splitting remittance transactions to claim additional financial benefits. There is growing pressure to scrutinize these payments to prevent misuse.
Dr. Inayat Hussain, Acting Deputy Governor of the SBP, also warned that curtailing subsidies could further reduce the flow of remittances through formal banking channels.
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